Your file size in divx will be by far smaller.
I use Divx and WMV only on both my units.
Yes there is a great quality in MPEG , but remember what you start with for encoding will greatly affect your veiwing with the end product.
I have seen Divx movies almost as sharpe as DVD and some you were not able to see to save your life.
There is a very good walk throught for how to encode a movie to Divx for Pocket use at this link here.
http://www.pdatweaks.com/howto.php?itemid=6
It was easy enough to follow, and after you have mastered that you can tinker with the settings to suit your veiwing taste.
**note** I rotate video 90 degree ahead of time so Pocket Divx Player does not have to. Not sure if it saves on the chip or not but it works for me.
P.S.
For tips on how to rip DVD to DIVX;-)
www.vcdhelp.com
Lots of goodies there as well.