asking for opinion on video formats for conversion

I have a number of VHS and VHS-C tapes which hold family movies.

I purchased a canopus ADVC300 a few years back for purposes of ripping these VHS tapes to preserve them.

My issue is that the files are huge raw AVI files (1GB = 5 minutes of 720x480 footage) so I need to convert them.

I was thinking about Windows Media Encoder 9 to convert to WMV, but I know there are some newer video formats and containers like MKV and h264.

Any thoughts on which format I should store these in? I want to do a conversion and then delete the raw AVIs. I may back them up to multiple DVDs (as files not video) first just in case, but they take up way to much space to keep on a drive.

My goal is to preserve quality, considering these videos are from the 80s and made with an early consumer video camera, and also to maximize compatibility in the future.

I would go with mp4 and h264 encoding.

http://en.wikipedia.org/wiki/H.264/MPEG-4_AVC

off hand, do you know of any good encoders from raw AVI to h264?

I know a decent amount about video encoding and editing, but I am not an expert. If I remember right h264 is the actual compression and MP4 is the container? or is that not correct?

I prefer DIVX but the rest of the world doesn't seem to like it.

I've recorded stuff from Digital TV before for editing and transfer to DVD format, and found that MPEG-2 at 8000 kbps variable bit rate video, and 224 kbps audio to be indistinguishable from the transmission. The VHS tapes will be of far lower quality than that - you won't lose data. At that rate you'll get maybe an hour of video on a 4.7 GB DVD, plus a menu.

You're better off sticking to the established DVD format, assuming you actually want relatives to be able to watch them in their own houses, without spending $2000 on computer equipment first.

EDIT: I've actually sold (not for profit) about 30 copies of [tv program - name edited out], worldwide to fans. The settings were as above. The quality of the DVDs was passed on by word of mouth, and they were cloned by the buyers for other lovers of good music.

I actually dont know a ton about it either. I am pretty sure h.264 is a compression for mp4.

I have a program called iVideoToGo that converts AVI (and others) to mp4/h264.