Video Compression - iPod Video 30GB

Hello All.... Merry Christmas or Happy Holidays, which ever you prefer.
I could not find a direct answer to my question seaching the posts, hopefully you all can help.
When a movie is purchased from iTunes it is an H.264 format with 1.5-1.7 Mbps total bitrate and 120-128kbps Audio and has a resolution of roughly 853x356 in most cases. These result in a relatively good quality video while watching full screen on my PC as well as on my MacBook Pro and great quality on my iPod Video.
In order for me to put a home movie on my ipod or my finacee's ipod i have to compress them further to 320x240 and can only go as high as 768 Kbps in order for them to even sync to the pods(as per listed iPod capabilities).
How can the movies we can buy get away with the beter quality?
Is it possible to go about using the same compression quality as Itunes does to get good full screen resolution? if it is possible how can i do it? what program is used?
Thanks for all you help....

mine (80 GB) can play a 640x480 video at 1.5mbps h.264 format. i use videora converter.

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