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I use FlaskMPEG or VirtualDub, both are free and Divx-encoded avi's look so much better than .wmv, even when encoding them with WMP 9 series codecs on WME or WMM.
I usually encode my avi's at 400 kbps, 1 pass, MP3 audio (22.5kHz,stereo), multiple passes give you better quality I think, but I don't like to spend the extra time.
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