You have to resize properly.
First, when you are converting the dvd to a big avi, better do it using the normal 1cd rip method, (gordian knot/Dr DIVX or something)
Then you can use Windows Media Encoder or VirtuaDub to convert it to a smaller size.
To get the squashing normal, this is what you need to calculate
PPC resulution : Width (usualy 320)
DVD or DIVX file resolution : Width and Height.
PPC Height : = (PPC WIDTH / DVD WIDTH) * DVD Height.
Using that will keep it the same aspect.
For DIVX, it needs to be devidable by 16, so round it upwards when it doesnt match.
Then in the conversion programs, put in Resize to : PPC width and PPC height.
Thats it.
Or look at
www.bigdsvideo.com for some additional info.