I travel quite a bit and have a 30gig iPod and the av cables, so I have encoded all of mine and stuck them on an external hd. I can fit about 1/3 of them on my iPod at any one time. It's handy to be able to watch movies or tv show when you're stuck in some hotel room, or need to pass a bit of time on the train, and having a decent selection on the iPod is good.
I don't worry too much about getting the best quality, since it's only entertainment on the go, but I do try to get a decent balance between file size and quality.