The only thing you need is the program [url]AutoGordianKnot or AGK[/url]. 
If you prefer DivX over XviD, then download it from the same site and install it after AGK.

Open up AGK,

1. Select input and output files, BROWSE -> search for input file. 
If your input file is a video set you must select the launcher (.IFO file). 
Click 'below' and specify the output directory.

castle's comment: after selecting the source, if you're going to use the XviD codec, press CTRL+F9, a window with some 'hidden' parameters will appear. There in the right bottom corner in .compatibility fieldset check 'enable standalone support', then select ESS from the box 'standalone chipset'.
castle edit:  also check 'bitrate spike control'

2. Select audio track and subtitles. Since one AVI file may have only one audio track, you may select only one of them. As of the subtitles, they will be sticked upon the video, this is not the best choice, cause resizing the image of the video will result in resizing subtitles as well and they can end up unreadable.

3. Select output size. Select some predefined sizes, like 700MB or 1400MB, or pass by hand the desired size or define the percentage of quality of the input and the size will be adjusted by the program. 
Select >800mb for movies >100min. 

4. Select the MP3 VBR with bitrate 128 as audio type from the advanced setting. 
For DivX, change the predefined selection of XviD to the other one.
Now you are done, click 'Add Job', then 'Start'. 
The whole running time for a ~100 minutes movie can keep 3-5 hours.
After AGK says that the second pass is over and the total running time is 'this', the DVD can be removed.

That's it

cheers