I use DVR-MS Toolbox & mencoder to shrink recorded TV down to h.264/avi. I then use mp4box to change the avi to an mp4, then the file will play fine through the Xbox 360 dashboard as well. An hours recording goes down to around 500Mb.
My mencoder settings are:
[x264-No-Resize-pass1-360]
profile-desc="H.264 - 1st Pass - Xbox360"
lavdopts=threads=2
noskip=yes
vf=pp=md,softskip,harddup
ovc=x264=yes
x264encopts=pass=1:bitrate=1000:turbo=2:me=umh:me_range=24:nodct_decimate:8x8dct:nofast_pskip:trellis=1:partitions=p8x8,b8x8,i8x8,i4x4:mixed_refs:bime:keyint=250:keyint_min=25:frameref=3:bframes=6:b_adapt:b_pyramid:weight_b:direct_pred=auto:subq=6:brdo:chroma_me:cabac:deblock:nossim:nopsnr:vbv_maxrate=10000:vbv_bufsize=5000:level_idc=41:threads=auto
oac=faac=yes
faacopts=br=192:object=2:mpeg=4
#DtbExtension=avi
#dtbhres="-vf pp=md,softskip,harddup"
[x264-No-Resize-pass2-360]
profile-desc="H.264 - 2nd Pass - Xbox360"
lavdopts=threads=2
noskip=yes
vf=pp=md,softskip,harddup
ovc=x264=yes
x264encopts=pass=2:bitrate=1000:me=umh:me_range=24:nodct_decimate:8x8dct:nofast_pskip:trellis=1:partitions=p8x8,b8x8,i8x8,i4x4:mixed_refs:keyint=250:keyint_min=25:frameref=3:bframes=6:bime:b_adapt:b_pyramid:weight_b:direct_pred=auto:subq=6:brdo:chroma_me:cabac:deblock:nossim:nopsnr:vbv_maxrate=10000:vbv_bufsize=5000:level_idc=41:threads=auto
oac=faac=yes
faacopts=br=192:object=2:mpeg=4
#DtbExtension=avi
#dtbhres="-vf pp=md,softskip,harddup"
MCE2005 (Will go with the Win7 public beta when available) | AMD64X2 3600+ | 3Gb Ram | 1.5Tb HDD | Hauppauge PVR150 | nVidia 7300LE silent GPU | Pig ugly big black case | Dead DVD drive | Virgin Media cable | Xbox 360 wired extender