Not read all this, but HandBrake rocks...been using it for some time now... H.264 is slow but its worth it
Can take a large file, say 20GB MKV, and create a SUPERB quality mp4 (with 5.1) at around 3GB...
Awesome bit fo freeeeee kit
It doesn't lke DTS much, so you could use an audio program called popcorn to convert to Dolby...not sure if this has been mentioned