What to use + tips to convert DVD into convenient avi-files?

On eMule (P2P network) if you search for a popular movie title you'll probably find it available in one or two 700MB avi-file/s. Or 350MB for standard length TV episodes. I assume it's illegal to download them (not saying I do), and this thread is not about that. I just want to know what do those guys use to convert their DVDs into smaller avi-files?

I have some older specialty (hobby) videos someone burned for me off 10 year old VHS tapes. I don't have the original tapes, but I'd like to convert the image files I have into decent avi-files to give to a few friends. So how does it work?

What program/s are recommended/used by people who convert DVDs to AVI all the time?

Can I (normal person) learn to do this without spending copious amounts of time on it? Links to guides?

How to choose the video and audio settings, and such?

FWIW, here's some info per Handbrake 0.9.2 about one of the mounted image files (VOB/IFO structure):
~2 hours long. audio is AC3, rate=48000 Hz, bitrate=192,000 bps. Video is 720x576, 25.000 fps, autocrop = 2/4/0/0.

Second: The quality is kind of poor. The original was not professionally shot or edited, plus it was burned of a VHS tape that was probably over 10 years old, so there's a bunch of noise, image could be sharper, colors could use a touch up, there's some static,... Any easy auto-correction or auto-touch up thing I could use on this video? And if so, should I edit it before or after I do the avi-conversion?

Any suggestions are welcome. FWIW, I have a bunch of freeware tools and codecs already installed... Handbrake 0.9.2, Any Video Converter, VirtualDub, K-Lite Codec Pack, ...