XviD(.avi,.mp4) is the best format for compression, and Mediacoder will convert to it. DivX(.avi) is also commonly used, and more people have the DivX codec, but Mediacoder will not convert to it. H.264(.mp4 usually) is the "new standard" video codec; it compresses nicely, though not as nice as XviD. Windows Media(.wmv), Theora(.ogv), and DV-video(.avi) are sometimes also used, but are not the best. Avoid all of the other codecs, as they are not optimal for compression.
A bit of trivia: H.264 will replace MPEG-4 part 2 video(the kind in common circulation now) within 3 years, and AAC will replace MP3 within 5. [ theymos's advice column | Ask theymos A Question ]
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