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...but is 167MB overkill for a 35 minute movie at 320 resolution?
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Most likely. I have been converting full-length movies to 320X240 and coming out near 300Mb. The quality at that level of compression is great at 320X240 (and still acceptable at 640X480). With some experimentation you should be able to come up with a file size that has acceptable quality. For example, I tried to get one down to 200Mb but the quality was unacceptable. At 250Mb it was marginal but at 300 Mb it was fine.
Each pass (1st and 2nd) takes about 30-40 minutes when converting a full-length movie. Your short movies should not take very long to compress.