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I personally use Dr. Divx for encoding a dvd rip for use on my ppc. I can take a full length movie and squash it down to under 150mb, so I am sure an hour episode could go under 128mb. IMO it may be worth the $100 for a 256mb card though.
the quality is awesome. just go into dr divx and open the file you want then it asks what type of encoding and it has home theatre etc... you will notice at the bottom it has handheld! and that works wonders and only about a half hour to encode
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