Welcome to the forum
Currently the best codec to compress movies with best quality seems to be H264, but movies compressed with this codec can be watched only on a computer (for what I know there are no standalones able to read MKV movies).
This codec, moreover, requires a very powerful computer: as comparison I can say that using my Athlon 2200+ it requires about 40 minutes to convert a 5 min movie from vob (DVD format) to mkv.