I have used the XviD format before (check here and here). My reasoning in these cases is that capturing a low quality or VHS source, you gain little or no benefit from the higher bitrates used for DVD-spec MPEG-2 (basically, you are encoding the noise more accurately!).

Darth Editous did a DivX version of his ANH edit. DivX conversions of DVDs from Cowclops and ADigitalMan have appeared on Demonoid. Deleted Magic and Building Empire are available as XviD files on the eDonkey P2P network.

The beauty of Xvid is that I can download a 700MB file from Usenet in under 10 minutes, whack it on a rewritable disc and watch it on my DVD player (that supports MPEG-4 playback). Because my upload is much slower, if I was to download a full DVD off a torrent site, I would need to keep seeding for at least 24 hours to get a 1:1 ratio. The casual downloader is therefore much more likely to check out an edit if it's a smaller format.

Many think that DivX or XviD = crap quality. In fact, when encoded properly, with due care taken with resolution and DRF values, the result can be near-DVD quality.