I use avidemux to re-encode my movies (divx, xvid, mpeg) to a smaller size. Avidemux provides a very good GUI which makes live a lot easier… I use those settings to re-encode a movie for my gp2x (works even in the safe mode without any problems):
configure: main, encoding type=Single pass – bitrate, Target bitrate: 350
configure: motion estimation, Motion search precision = 6
filters, MPlayer resize: 320*170 (for a dvd, if you re-encode a 4:3 tv rip you can use 320*240)
configure: CBR, 96kbits
filters, resampling 48 to 44,1kHz
The filesize will be reduced to 200-300mb.