I use the following free programs:
DVD Shrink - to get the dvd down to 1/2 size
DVDx - Output to .avi
PSP Video 9 - get it to 368x208 (full screen PSP video) - 320x240 (reg format)
Haven't tried the new Nero yet, but using these, have gotten full length movies onto 512 mb sticks...THe Matrix on one and Legally Blonde on another.