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How do they do the ripping and encoding?

Ditto on DVDShrink. Simply the best thing for making backups.

As for backing up via stored file on your PC, I like FairUse. Like Bruno said, 2GB is great for storing an entire movie as an AVI (I prefer Xvid to Divx). These files look great streamed to my Linkplayer onto a 60" TV. You can even keep the surround sound tracks.
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Matt