To produce an excellent quality but re-compressed AVI version of that HD clip, I will again first edit with VRD and save to MPG. Then I use VirtualDub (with the MPEG-2 plugin) to read the edited MPG/MPEG-2 clip, and save to AVI using xVid (with high-quality encoding parameters, along with "smart de-interlace" plugin for 1080i originals) to compress the video but use "direct stream copy" on the audio (because I want to retain the original DD5.1/AC-3 audio if present). I've also tried using x264 (i.e. H.264) to encode the video but feel more at home with xVid, and the results are indistinguishable to my eyes. The AVI clip produced is still original 16:9 and really is virtually indistinguishable from the HDTV original even if I choose to re-size 1920x1080 to 1280x720 if I want to reduce the size of the AVI.
I too use the Ceton 4 but I'm having a bit of trouble. I've tried about every suggestion I can find online and nothing can produce the quality that the original shows show in .wtv and .dvr-ms. It's close but I can still tell a significant improvement from any of the conversions and the originals.
dsperber, have you noticed this? Any suggestions? With torrent downloads I've had had full 60min episodes that are commercial free in 720p at about 2.15GB each which I could live with if I could condense my files with the same quality to that size.