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I would rather create xvid or divx encodes at around 800Kbps that achieves quality similar to that vid you just pasted.
XviD settings
Single pass:
consecutive b-frames set to 2
i-frame quantizer 2-4
p-frame quantizer 2-5
b-frame quantizer 2-8
the rest of the settings left as default
You can get a decent looking encode that would fit a 1GB SD card easily. A one and a half hour movie would be around 700MB. And since divx and xvid work on pockettv and betaplayer, it's no problem. I would rather stick to more compressible codecs than MPEG-1 or MPEG-2. They are very good at retaining quality in low bitrate conditions.
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