Video Converting (size of files)

Hey guys, I am getting a 8GB iPod Touch. And I converted Live Free or Die Hard from AVI to MP4 and the file got drastically bigger (to 1.22 GB) so it’ll take up alot of my only 8GB. Is there any video convertor that minimizes the file size or compresses it but still have decent quality.
Thanks (and btw I used Xilisoft Video Convertor 3)
Answer #1
Select an other codec, or lower the bitrate. The filesize does not depend on the container(mp4, mkv, avi etc)
Answer #2
Go for Xilisoft Video Convertor and yes try to reduce the widthxlength of the video to fit the ipod. and sound etc.. this will move the size down or use some ipod vid cnverter
Answer #3
Where would I select another codex, lower the bitrate, or make it smaller on Xilisoft Convertor?