Like Mach said, you'll need the WM7 codec installed, but I don't think Microsoft makes that available anymore. I have it on my computer if you want it. I hate WM9 because it doesn't play on WMP6.4.

Anyway, after you get that, install this to create the WMV files. You'll have loads of controll over the outcome. I've been using this for a long time, and you can make very small files with the right settings. Especially ones that are meant to be played on a portable player.

*edit*
ps- with Windows Media Encoder, you should be able to make that file much less than 100MB.