With your setup you could easily go with RatDVD. That's what I use to back up to my HTPC, but my M10k can't handle the playback load. It preserves the menus, you can easily decompress them later if you ever need to, and it's the simplest process around.
For Xvid, which is what mine are for my carpc, 1.4GB is the minimum for good quality IMO, since I always keep the 5.1 AC3 track. 700MB doesn't cut it even for a 7" screen.