Avi.NET is a powerful tool for converting MPEG (-1 and -2) videos to DivX or XviD-based AVI files, greatly reducing their size.
If you'd like to fit a huge MPEG on a CD, for instance, just open it in the program, set the "Convert to Size" option to 700MB, and Avi.NET will adjust its various configuration and quality options to try and hit that figure.
Or, if you need to take more control, then you can manually adjust the video and audio bitrates, or resize the movie. There's an option to trim the edges of the image, which may help, and you're able to deinterlace the source video at a click.
Please note, the program is fussy about its codecs and currently won't run unless you've the very latest version of XviD installed. If you get this error then grab a copy from the link on the program's home page.