The amount of time it takes to convert video from one format to another will largely depend on two things: 1) your computer specs, and 2) the software used for the conversion. Encoding time in itself shouldn’t be used as a judge of resulting quality because some encoders naturally take longer than others. However, if the encoder you’re using allows you to do things like set the number of passes, then increasing the number of passes will increase both encoding time and quality (up to a certain extent).
Stick with MPEG2 as your output video because it has higher quality than MPEG1.
The recording time on a dvd (such as the “120 mins” you see on yours) is only for standalone recorders because they use a fixed bitrate for recording the video onto the disc, which means that the amount of time they can fit onto the disc is fixed. This recording time has no meaning when you’re using your computer.