I've been using Mediafork, the latest version of Handbrake.
Encoding to h.264, 1500 average bitrate. Go into picture settings and play with them until the pic looks right, ( usually anamorphic, but not always). I haven't noticed that 2 pass encoding made any difference in picture quality, so I'm just going with single pass.
Movies I've encoded thus look better to me than native iTines content that I've downloaded, ( not that the iTunes stuff is bad, it just doesn't have the same "snap".)