h.264 is used by blueray as well as hd-dvd (or was used by hd-dvd). Its capable or anywhere from the highest resolution to very low res portable formats. Its good for HD because you can fit a lot of video information within a reasonable amount of space. Its good for portable video because you can have decent quality video with a relatively small size. While it is capable of very high compression with very good quality, the drawback is the processing to get that quality takes POWER!!! Playback requires a FAST processor (for HD anyway). You of course shouldn’t have any problem with that q6600 though. One thing to consider is, will it be played on other slower computers that are not as fast? Of course a 50$ (or less) video card will solve that (though you have to make sure you get one of the few select models that support full h.264 processing and use a player that supports full hardware acceleration). As you are talking about converting dvd though (SD video), I would guess that it requires less processing power as there is a lot less information to decode with SD video (though the h.264 format does require more power than other formats of similar resolution).
Fyi I have been doing just that for a while and let me tell you, its friggin super sweet to have it all right there. SD video (converted dvd’s and captured tv) plays just fine on my htpc that has an athlon 64 3400, though I cannot recall if I tried to play any before I got a 2600xt that hardware decodes h.264. Prior to that I was converting to nero digital (a little bit older form of mp4 than h.264) and it played fine without the 2600xt. Converting is a pain in the but though. Even on that fast machine, it takes time to convert.
If you have a lot of hard drive space though (very usefull on an htpc), you could do what I am doing (if you have a large library and or a lot of recorded tv too taking up space). Start ripping all your movies to the hard drive with dvd decryptor. It only takes 5-10 minutes to get the movie on the hard drive so you can get a lot of movies on there fast. You can watch the ripped movies just fine (I use nero showtime but I’m sure there are other programs that can do it fine too). When space is getting a bit low on the hard drive, pause on the ripping for a while. You can then start converting the ripped files to h.264 at your leisure (and delete the ripped dvds as you convert them). Once you get several converted it will free up space to rip more. Further, I’m not sure how long it takes to convert with a q6600 (it takes me about 2 hours with an e6300 for an average movie so yours should be faster), but with them ripped to the hard drive, you can convert several at once since you are working from the hard drive, not from a disk. You can start several before you go to bed or work, and next time you check, they are all done. I think the most I have done at a time is 5.