I would recode the DVD (which is MPEG-2) to MPEG-4. This reduces file size (and network load) drastically. 5-10 times, depending on bitrate used. I personally prefer XviD, libavcodec is very good too. Knowledge in video formats and encoder tuning is recommended for perfect result.
Here is a dedicated Linux distro for playback:
http://www.geexbox.org/en/
You may resize 480 pix video in recoding process (frankly I don't see any good reason to do this, may require some clever filtering and results in bigger file), configure the Geexbox output for higher resolution or let your HDTV do it for you.