Hi Desperado72 and welcome,
No, you’re not doing anything wrong. One of the big advantages of DVD to Mobile conversions is being able to reduce the file size, yet maintain viewing quality.
I don’t use the PS3 profiles at all, just Ipod for me, but there are a great many variables and limitations.
You probably used the default settings, but after you click on [B]Next[/B] > click on [B]Conversion Settings[/B]
You’ll see a number of parameteres for conversion settings.
The lower left corner, just above audio, note the slider for adjustment of [B]kbps [/B]and [B]MB[/B]. You can play with either setting within certain limits depending on a particular device and profile.
Feel free to experiment, but if it ain’t broke, don’t fix it…