I'm trying to convert a *.mpg (copied off a VCD - 700MB) to perhaps a MP4 as I wish to view the file on my Treo 650. So I would like to reduce the file size to about half and perhaps change the resolution to a 320x(whatever).

My input file:
From: MPG
Video: mpeg-1, 352x288, 1140 kbps, 25 fps
Audio: mp2, 44100Hz, 224 kbps

Output file:
To: MP4 H.264
Video: mencoder h264, 352x192, 197 kbps, 25 fps, no crop
Audio: aac, 48000 Hz, 128 kbps

Other options:
Under Video Tab:
Video Size: 320x240
Autosize: 4:3
Framerate: PAL(25)

Here's what I get after pressing the Encode button:

***
Encoding started on Fri Feb 10 07:42:47 SGT 2006
MEncoder dev-CVS-051126-18:35-3.3 (C) 2000-2005 MPlayer Team
Mac OSX static build for ffmpegX
AltiVec not found
CPU: PowerPC
success: format: 0 data: 0x0 - 0x2c78ed9c
MPEG-PS file format detected.
The selected video_out device is incompatible with this codec.
Also try adding the scale filter, e.g. -vf spp,scale instead of -vf spp.
VIDEO: MPEG1 352x288 (aspect 8) 25.000 fps 1140.0 kbps (142.5 kbyte/s)
[V] filefmt:2 fourcc:0x10000001 size:352x288 fps:25.00 ftime:=0.0400
Opening video filter: [expand osd=1]
Expand: -1 x -1, -1 ; -1, osd: 1, aspect: 0.000000, round: 1
Opening video filter: [scale w=320 h=240]
Opening video filter: [pp=0x33]
Opening video filter: [harddup]
================================================== ========================
Opening video decoder: [mpegpes] MPEG 1/2 Video passthrough
VDec: vo config request - 352 x 288 (preferred colorspace: Mpeg PES)
[PP] Using external postprocessing filter, max q = 6.
Could not find matching colorspace - retrying with -vf scale...
Opening video filter: [scale]
VDecoder init failed
Opening video decoder: [libmpeg2] MPEG 1/2 Video decoder libmpeg2-v0.4.0b
Selected video codec: [mpeg12] vfm: libmpeg2 (MPEG-1 or 2 (libmpeg2))
================================================== ========================
VDec: vo config request - 352 x 288 (preferred colorspace: Planar YV12)
[PP] Using external postprocessing filter, max q = 6.
VDec: using Planar YV12 as output csp (no 0)
Movie-Aspect is 1.33:1 - prescaling to correct movie aspect.
SwScaler: FAST_BILINEAR scaler, from Planar YV12 to Planar YV12 using AltiVec
no need for a SAR
x264 [info]: using cpu capabilities
1 duplicate frame(s)!
***

Any ideas? I tried other formats as well but get the same errors!
Thanks in advance!

I'm using a PowerBook G3 400Mhz, running 10.3.9 and FFMPEGX 0.0.9.u.

Mark.