I have done a minor set of experiments with Handbrake, and was able to get a video_ts folder done with DVDShrink (shrunk to 4.7Gig) down to 300Meg. Some minor artifacts, but watchable nonetheless.

I'll try to remember to post the profile.

BTW - You can change the audio encoding and it will play in MPlayer. I forget which, but AAC works in one player, and MP4 in the other.