Afaik it won't degrade the quality but the size will increase (or you can keep it the same size and degrade the quality). The function of the divx and similar codecs is to use cpu power in place of actual space, basically. Many newer players will play divx-encoded files, but I can't vouch for how well they do so. Someone else will probably have a better answer, but my advice would be to check out the forums at virtualdub.org. I just watch avi's on my pc with my 7.1 setup, so am not familiar with what you want to do.