What is that mysterious "X" in the upper right corner of the Viewer?

I am new to Final Cut Express, and have a couple of questions that I have not yet seen addressed anywhere.
First, I am encountering an "X" within a white circle (more or less) in the upper right corner of the Viewer at various points during playback. It does not seem to correspond to anything in particular, as far as I can tell. I have checked the documentation, but there is no mention of it (that I can find); similarly, it does not seem to have come up in any of the discussions, or in anything else I've found online.
My second question requires a preface: The particular file I am working with is one that I have had to extract from a DVD in Toast and export as a QuickTime file in order to work with in Final Cut Express. Initially, I exported the file with uncompressed video; I got really smooth playback in FCE's viewer, but discovered (insert sound of slapping forhead here) that the QuickTime file I had created was about 125 GB (the video is just under an hour long). Since that clearly was not going to be a viable proposition for long, I went back and tried exported from Toast using H.264 and then MPEG-4. Both resulted in much more reasonably sized files, but playback in FCE is not terribly smooth.
So, the second question is: What are good settings to use when exporting as a QuickTime file? I'm basically looking for minimal to no loss in video quality, reasonable file size, and smoother playback in the FCE viewer. I realize that this is partly going to be a matter of opinion; I would just like to know what folks with more experience in this area think.
Thank you very much!
Kevin
iMac G5 Mac OS X (10.4.8) 2 GB RAM, FCE 3.5.1
iMac G5   Mac OS X (10.4.8)   2 GB RAM, FCE 3.5.1

That does explain the X. Thanks!
The reason I'm exporting in the first place is that a friend of mine wants me to fiddle with the rough cut of his video project a bit, and burn the results back onto DVD. (I think he thinks I can do more than I actually know how to at this point, but I figure that playing around with it is a good way to familiarize myself with the application.)

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