Hi, I've just converted a number of videos from avi to mpeg using this command:

mencoder -oac lavc -ovc lavc -of mpeg -mpegopts format=dvd -vf scale=720:576,harddup -srate 48000 -af lavcresample=48000 -lavcopts vcodec=mpeg2video:vrc_buf_size=1835:vrc_maxrate=9800:vbitrate=5000:keyint=15:aspect=4/3:acodec=ac3:abitrate=192 -ofps 25 -o file.mpg file.avi

A 1 hour video takes about 2,2 GB.

I've got another video I converted once on a windows box with tmpgenc, it's an hour and 20 minutes but only takes a bit less then 1 GB. mplayer gives this info on it (the video is decent quality for me):
VIDEO: MPEG1 352x288 (aspect 8) 25.000 fps 1150.0 kbps (143.8 kbyte/s)


on the other I just converted:
VIDEO: MPEG2 720x576 (aspect 2) 25.000 fps 9800.0 kbps (1225.0 kbyte/s)

another I just converted which I made a lower res, ended up being 1250MB for a bit less then an hour:
VIDEO: MPEG2 352x288 (aspect 2) 25.000 fps 9800.0 kbps (1225.0 kbyte/s)

I see the first MPEG1 video I did convert a while ago with TMPGENC uses much less kbyte/s .

How can I convert my avi files to mpeg files which don't take too much space so I can fit them all on one dvd ?

The short answer is: you can't.
MPEG-2 is an older standard, MPEG-4 (which is used in avi files) is newer. In MPEG-4 the compression algorithm is improved, resulting in smaller files.

just out of curiosity, what does the command "file" have to say about the newly encoded files?

More important tho, why is using mpeg2 codec so important? Why not another, more improved codec do?

Well it's important because I want to put it on a dvd and let it play in a dvd player which sadly isn't able of playing divx.

file has this to say: MPEG sequence, v2, program multiplex

I think I can make it smaller by not using dvd format but svcd. Just reducing the quality of the video and sound, but still keeping it good to watch on tv, it's no bigscreen after all

I have done allot of video editing using different compression ratios, I believe DVD Lab Pro is from the same vendor as your TMPGENC. It's allot of work using this vendors products but can be done by re-editing, trouble is, the more times you edit a video, the more the quality degrades. The best application I've found so far for combining different compression types as well as different formats into one DVD by simply adding the files to the project and select "auto" for size to fit on single layer DVD, and with/without menu, is Ahead Nero Premium 7. Which I downloaded for free with keygen through shareware app. Unfortunately it is ported for Windows, but simple & easy once you get the hang of it.

An excellent Linux app for this is Avidemux. It has even presets for DVD, SVCD and VCD.