For an iPod, MPEG 4 video at 720 kbps or under with AAC audio at 160 kbps or under in an MP4 container. At least that is what works best for me. I use Avidemux, start with the iPod preset, adjust the video bitrate to something like 600, change the scaling to use Lanczos3 and possibly increase the audio bitrate to 160 kbps. Those settings always work for me, and leave subtitles readable.
Post edited at 2:27 am on Aug. 8, 2008 by Macropiper