I think it's up to you about what you wanna do with your DVD's. In finland for example it's legal to encode DVD's into divx/xvid for your own use (if u don't distro it).
I suggest you go to
www.doom9.net and read DVD2DivX guides they have in there. Also consider using latest alpha XviD. Also see
this and
this.
I am not much of encoder (I have done some encodes using transcoding scripts) so I can't help you more then this. Good luck