Issue when transcoding with WinAVI

so here’s my problem… i use WinAVI to transcode .avi’s to .wmv so i can stream it out to my xbox 360 via my WMCE PC.
Most of the files are are originally ripped with the DIVX codec into .avi and i’m using the windows media encoder ver.8 because it’s MUCH faster than ver. 9 and i always set the resolution manually to ensure that i get a good “fit” on the screen with WinAVI, (for example the original .AVI is 656 x 272, so i set the res. to the same for the output file) AND i keep the “quality” set to 98%.
When i stream it out to my TV, the image noticibly has pixelation thoughout the entire movie, but it is MUCH more apparent when there is a “shadowy scene” and not too bad when it is a scene with good lighting…AND finally, the output .wmv file has poor audio…if i max the volume on my TV then the audio level is about what it should be normally, so basically im getting a crap-output file, but i have to keep it in WMV format because WMCE will only stream out MPEG and WMV and the latter obviously has MUCH better compression that mpeg (yes i know there are other ways to get the 360 to accept incoming video streams, but thats no good.)

any suggestions?

Try with another transcoder tool, visit www.videohelp.com/convert and /tools …

not that i dont appreciate the suggestion… because i really do, but i was hoping for a little more “personal experience” help, rather than just a “here, go read this and figure it out”.
I have a decent knowledge of transcoding video, and usually i use NeroVision Express 3 to convert all of my video to DVD with NO problems… but i HAVE done a bit of research on converting Xvid AVI’s to WMV and havent had much success, so im looking for some tips from people who have found themselves in similar situations when converting video over to a different format because it’s driving my CRAZY! :doh: