prasanna,
I use VirtualDub most of the time as it enables me to resize to 160x120 before conversion. It outputs a much larger file 6-7GB but I have no problem converting then. I also convert them into 4 or 5 files rather than 1 so that i do not have to start the video from the begining if I want to pick up where I last left off. You can also set a start anf finish point and cut out credits et. which reduces the final file size.
VirtualDub is a bit trickier to use but this helped get me started:
http://www.s1mp3.org/wiki/index.php/Video_encoding