Completely disregarding MPEG encoding for a second, the first thing to keep in mind is that regardless of what you're going to end up doing with your video...
The footage can't get any better that what you're originally providing the encoder with. If your video doesn't look so hot, MPEG-ing it won't help.
As long as your video looks good, the final result can be anywhere from crap to great.
Personally, my final AVI encodes have been 720x480 HuffyUV exports from working with VOBs. Quality can't get any better. Therefore, the MPEG encodes have been just about as good as they're going to get.
Previously, I simply used to make 320x240, 29.7 fps, 192 kbps stereo sound, 1500 kbps constant quality MPEG encodes. They looked decent.
Lately, I've been doing 352x240, 29.7 fps, 192 kbps stereo sound, variable bitrate (3000 max, 300 min, 2000 average) kbps MPEG encodes.
Check out Meri's Utena and Ceres videos, and our Bebop / "The Professional" trailer. That's what our MPEG encodes are coming out like.
Granted, we could do some more with them, more closely following along with ErMaC's guides, but at that point, I guess it's almost irrelevant. Someone's going to be viewing them on a computer, anyway, and at that point, they're pretty darn good looking.
Always be sure to put the motion precision setting thingie at slowest / best quality :D