I use the following mencoder commandline to encode to a satisfactory .avi. It plays well in MPlayer itself and in Windows Media Player:
mencoder dvd://1 -alang en -o dvdrip.avi -oac mp3lame -lameopts vol=8 -ovc lavc -ffourcc DX50 -lavcopts vcodec=mpeg4:aspect=1.78/1:vbitrate=1800:vrc_eq=tex:naq:ilme:trell:cbp:preme=2:subq=8:keyint=132:mbd=1:qns=3:vme=4:dia=3 -noskip
However, on LG DVD players made in the '07 / '08 model year, that have a "DivX" compatible logo on the case, the resulting clip does play, but is heavily artifacted. Audio is 100%, but video is very badly munged up.
I've tried different bit-rates and keyints, but nothing seems to be able to reduce the level of artifacts viewing the clip produces.
Anybody got a commandline for mencoder / codec suggestions that produces a container format that DOES play with little / no artifacts on recent DivX compatible LG DVD players?