Ditto on DVDLab. I just upgraded to the pro version because it's so damn good.

This was an older thread. Since it was last up I've used that FairUse program I linked quite a bit. Every once and a while it screws up and creates a 12KB file, but for the most part it does a very quality job. You can encode in Xvid or Divx and with an AC3 audio track.