I've been playing with encoding size/quality lately and the biggest difference to me seems to be in the bitrate setting. I'm using Sony Vegas to encode into WMV9, and going from 3Mbps down to 1.5Mbps was a HUGE space saver. There are also a couple settings you can adjust as to how hard it works to render it at the best quality possible, which increases the time it takes to render but it improves it a decent amount. The thing that surprised me the most was that resolution didn't help save much space. I cut my movie from it's native 1280x1024 down to 640x512 (half sized) and it only brought my video from 120mb to 100mb.
Another couple things of note are that when working in vegas, it's best to set your video project to your raw FRAPS videos' native resolution. I.E. If the default in sony vegas in 800x600, but you're recording your videos at 1024x768, it's already lowering the quality of your video trying to convert pixel to pixel. Also there's a couple settings in your video project properties that designate the quality at which it handles the video. I can't remember off the top of my head the names of those settings.
If it would help, I could post a tutorial video or two that I used to figure it all out. There's some decent ones out there.
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