I can't see what's wrong with your settings, I use Fair Use ( still figuring it out) and your settings are lower than mine I generally try to keey to as near to screen size as poss (600ish x 400ish for widescreen movies) and 96kbps for the MP3 sound and I have 2 pass Xvids that come in near target size give or take a couple od meg. I usually allow about 100mb per 30mins.
I usually set the sound quality, picture size then the file size and that seems to work, sometimes you have to adjust the picture size to keep the file size down, I have to do that with a couple of episodes of Frasier.
Hope my limited experiences help, best of luck.
If you do go for commercial Pocket DVD Studio is not very good.