I've just tried this. I left everything at default. But when I encoded a 17 MB VOB file to Xvid it came out at 27 MB
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It is possible to end up with an AVI larger than the original vob file, although not common. For example if you encode one containing very noisy video using a quality setting, the encoder uses whatever bitrate is required to achieve that quality, and if the video is particularly hard to compress then the encoded version may have a higher bitrate than the original.
Keep in mind, AutoGK is only guaranteed to work correctly with the version of Xvid which comes bundled with the AutoGK installer. You can only have one version of Xvid installed at a time and without the correct version, the xvid encoder could end up using all sorts of odd settings which might adversely effect the way the video is encoded. Some codec packs may install a different version of Xvid by default. If in doubt, uninstall xvid and re-install AutoGK.
Other than that, if you copy the contents of the log file AutoGK saves when it's finished encoding and paste it here, it'll probably provide some insight into what AutoGK is doing.