Avi, divx, 5.1 surround

Ok guys, sorry, every time I have a question I feel like the answer is probably common knowledge to most of you, but I only know what I need to know to do what I need to do and my needs have expanded.
I rip my dvds to avi or divx, transfer to my external HD, plug it into my xbox 360, and as you know have my whole library at easy access. What i need to know is there a format/program (which is supported by xbox 360) to get a movie down to that convenient 700mb-1gb, but also has 5.1 surround sound?

Dunno about the Xbox but AutoGk can keep an AC3 stream in the resulting AVI instead of converting it to mp3.

awesome, that might be exactly what im looking for. If the xbox wont recognize it maybe it will at least stream with TVersity or something