This concept works fine for me but I use Ziova Network Media Players, not PS3's

What you need to do is experiment which profile works best foryou and I would suggest generic.XVid.AVI.audiocopy @ 1100 bitrate as a start point and have a look at the crop and resolution parameters.

Upgrade to the latest beta as these parameters are far more adjustable in the new version.

I would look to obtain a resolution of approx 720 x 400 for a widescreen movie.