First of all I would like to make it clear that I know of the guides, but I would like straight answers.
I've been making amvs for quite some time now. Nothing professional, I just got better as time past. Luckily I seem to have a talent for this

Here is where I stand:
1. I have downloaded Dattebayo and Taka Shippuuden episodes. I am also collecting and not just getting them for AMVs. Since I like to re-watch from time to time along with other anime.
2. I use Vegas 7, as you all probably know these files cannot be used for editing as they either have no video stream or lag like crazy.
3. So, I convert them to mpeg2 (848x480 with the new eps)...which solves my editing problems, but quality itself is not too great.
Why? Same quality in mpeg would equal triple the size and I am going for around 250mb/episode. Having each episode double makes no sense and I want to have episodes with storeable size, I delete the original.
Now it has been ok until now, but seeing more and more HD vids up on youtube makes me want to get rid of those fast scenes which end up quite pixeled after conversion.
So I came here to ask. Into what format do you convert the downloaded episodes so the quality doesn't drop too much and the size doesn't go through the roof?
Or is this even possible? Should I start converting 500mb+ mpeg2 episodes and get used to it? Obviously uncompressed is not an option for me since that's not storeable.