Frizzy video converting from DVSoft to Divx/WM9

[Crellion101]

I made a mini-movie from my Digital8 cam and worked it through Premiere. I exported my video from Premiere to avi using DVSoft codec. That huge resulting file looked absolutely superb in quality. But I need the size reduced, so I put it through the Windows Media Encoder and shrunk it down to 50 megs, but the resulting video I see has grazing lines that are particularly noticable when pictures are in motion. This also occurs with virtualdub and Divx. Anybody know of a solution?