Iridium
The only thing about converting to VCD is you loose a great deal of QUALITY as VCD's conform to a fairly old standard.
If you want really good quality, try to use DVD Shrink (which you can download
here) and convert it to AVI or something similar with better quality settings.
The best way to get the best quality is to RESIZE the video down to the size you want as your end result (ie: 128x128) then use the AMV convert tool to convert it to .AMV. You will notice a diffence in quality.