MPEG-1 to XVID, recommended settings?

[MDT]

Can someone recommend the best and most effective settings for converting MPEG-1 (1150kbs) files to Xvid (1.1 beta 2), using virtualdub?
My goal is to reduce the size while mantaining as much quality as possible.
I've spent the last few days tinkering with virtualdub without any sastisfactory results.

MPEG-1 file info
1150KBS video bitrate
224 CBR audio
aspect ratio: 352x240

Using Virtualdub
Compressed with Xvid 1.1 Beta 2
Filter:
Aspect ratio: 320x240
Precise Bilinear
Compression:
2-Pass
AS-5
Quantization type: MPEG-Custom (eqm_v3lr.xcm custom matrix)
Adaptive Quantization: NO
Interlaced: NO
QPEL: NO
Global Motion: NO
BVOPS:
Max: 2
Quantizer Ratio: 1.50
Quantizer offest: 1.00
Packet Bitstream: NO
Motion Search: 6-Ultra High
VHQ: 1 - Mode decision
Use VHQ for Bframe: NO
Use Chroma motion: YES
Turbo: Yes
All Quantizer are set to 2-31
Audio: Lame MP3 128Kbits
Target bitrate: 1000kbps

My original mpeg-1 file is 480MB (47 mins), after converting it was reduced to 210MB (actual bitrate 450kbps). As you can see the final output file size and bitrate is alot smaller than what I specified. I was not sastified with the video quality at all.
There are alot of noise around the edges and the color isn't as bright as the original source.
I tried switching the custom matrix to "eqm_v3ehr.xcm (High Bitrate)", same spefication as above. This time the final output size was 350MB (950kpbs), no undersize problem this time, but the quality difference was minimal compared to the (210MB) file, not worth the 120MB difference.
I also tried using the default Quantization type: H.263, again i wasn't happy with the result.
Using Temporal Cleaner v0.5 and Smart smoother, both at default setting. I was able to remove some of the mosquito noise but skin textures looks like plastic.
What settings/filters would you recommend for converting MPEG-1 file to XVID? Are there any filter that would help me reduce the blockiness/noise (very minimal) of mpg1 files?
I would like to maintain as much quality as possible while reducing the file size by 30-50%.

[madoka]

Without knowing the type of video you're dealing with (anime, cartoons, movies, etc.) it's hard to give precise suggestions. But in my experience MPEG-1 video is very noisy in general, so you should take care of that before worrying about XviD settings.

To clean up the noise I suggest you visit the AviSynth (http://forum.doom9.org/forumdisplay.php?f=33) forum. Particularly I find the MipSmooth filter to be quite helpful.

Lastly, I notice that you changed the aspect ratio from 352x240 to 320x240. Unless you're certain that you don't want anamorphic video, I suggest you leave it be.

[MDT]

Mostly movies, non action.
I prefer it to be 320x240, there was no noticable distortion after resizing.
Thanks for the suggestion, i'll give Mipsmooth a test run hopefully it doesn't leave a plastic effect like with other temporal smoother

[MDT]

Does anyone have a working link for MipSmooth virtualdub filter? The official website is down.
If you have any suggestions on how I can improve encoding from MPEG1 -> AVI, please post them here.

[celtic_druid]

Not sure that there ever was a VDub version. If the site is down then you can always grab it from http://www.avisynth.org/warpenterprises/ along with most other filters.

[mgh]

If your OS is XP-just use avi.NET
It uses DGINDEX and avisynth. DGINDEX now works well with mpgs from VCDs. Postprocessing for deblocking and deringing is built into DGINDEX as an option and avi.NET uses it. It also uses the avisynth autocrop and removegrain filters. It automatically sets bit rate to about .2 bits/pixel.
With decent VCD source it will give you excellent results. If you need to use more filters, modify the avs file from the temp folder it creates and then encode with virtualdub using the bitrate suggested by it.
Additional advantage of avi.NET is that it is very fast.Files created by it are compatible with my philips dvp642.