I've converted tons of stuff to use on the xbox.
Unfortunately, the xbox has got to have the worst scaling system ever. So low res videos look awful.
That means you pretty much need to upscale the video as part of the encoding process, which leads to bigger files.
Like you I've settled on xvid, with audio copy - that retains the 5.1 surround track, and privides reasonable picture.
For picture quality, I set the bitrate to around 2000bps, shooting for
.2 or higher, but not much higher.
I generally turn off cropping, feeling that a standard output ratio is likely to be more compatible.
One thing I experimented with was resolution - I set it to the highest possible rate for widescreen I think this is 848x480, for full its 640x480.
The results aren't bad - they look incredible on a tube tv.
On a big screen however they still don't look as good as the original DVD in an upscaling DVD player like the Toshiba A3.
It might be worth giving MediaCoder (free) a try - you can set resolution up to 1920x1200 - might do a better job of upscaling the source.