CALLING ALL EXPERTS: Jon Walker, iDaze, Glor...(excuse me if I've missed anyone from this list, please don't feel excluded).
Well, not sure I'm an expert, but I've been getting some pretty good looking results. First off, it seems I'm one of the few people that's encoding specifically for viewing on the ipod only, so if you want to view on a tv, then don't use my settings, use a larger mpeg, or a larger h.264 setting if it's wide screen.
My settings are h.264
1 pass
650 kbps
320X240 (or 320 by whatever the hight ends up being for a widescreen film)
all of the other settings on handbrake I leave alone. (actually 1pass is default, so you can leave that setting alone too)
Reasons for my settings:
h.264:
It's just more crisp to me than mpeg4 on the ipod screen, and well worth the extra encoding time, as I plan on enjoying these rips for quite awhile.
1pass vs 2pass:
I really couldn't tell a difference on the ipod screen. maybe you could if you were outputting to a tv, but for the ipod screen, I couldn't tell. And holy smokes 2pass h.264 takes forever.
650kbps:
This is a tricky one. The ipod can handle up to 768kbps according to Apple, but it can actually handle more than that. However, just because you type in 768 into Handbrake doesn't mean you're going to get that result. Like someone else said in this thread, it depends on the movie. Some people have been able to enter even higher than 768 into Handbrake and have their ipod accept it. But after spending 5 hours ripping a dvd at 768 once and having the result end up at 924kbps and then having the ipod not accept the video I've been chickening out and using 650kbps, which is looking great on the ipod, and so far working every time. Also, if you want to check your final rip just open the movie in QT and click get info from the menu and it will show you your average kbps.
320X240
Like I said, for the ipod screen only, then 320 width is going to be perfect. One trick I used on a widescreen movie though was to uncheck the "keep aspect ratio" and then bump up the hight one click. It didn't look too stretched at all to me, and fills up the ipod screen just a bit more.
Anyway, probably more than you wanted to know.