Mencoder is great, you can throw anything at it, including video files from your camera and have it encode into xvid or almost any other format.
In my case I took 640x480 video from my Canon and reduced the size by 1/3 with the options below (there are many other options that you can read about in the manual but I like to keep it simple).
Mencoder Encode
mencoder -ovc xvid -oac mp3lame -xvidencopts fixed_quant=4 -o ........