Problems with avi file

[ranma_st]

I tried to encode LOTR in avi format using flask(divx). I used all the parameters for a VCD exept the resolucion, which was 720 x 480. The final result was a movie with lots of squares specially when there is movement. My question is: I know that resolution is not related with the size of the file, however, if you try to use higer resolutions do you need to increse the bitrate for good quality? I used bitrate 11500 as in VCD.
So, when you try to create a file with the bitrate of a VCD should you use the resolution of 352 x 240 (NTSC)?

[ranma_st]

What I mean is: When you use a given bitrate (eg. 1150 for VCD) if you increase the resolution (eg. from 352 x 240 to 480 x 480) your video quality decrease? So for higer resoulutions you need higer bitrate (in order to maintain quality)?