There are a few programs out there that you'll hear of: Handbrake (now called MediaFork); Streamclip, and VisualHub. They all have their supporters.
I tried Streamclip for all of 5 minutes, admittedly I was initially confused by the interface and said the hell with it and moved onto the next one (mediafork) but I've heard some good things about Streamclip. After using MF for several days, I then decided to try out VisualHub.
For me, in the end I decided to pony up the $24 for VisualHub. I like it's interface, I can just drag a VIDEO_TS folder to the interface, set it on "Go Nuts!" and click the "Start" button. In the end I have a great looking movie to watch (my wife didn't even realize we weren't watching the actual DVD last night when we watched "The Hunted"). Now you can get that quality from all of them, but I liked how much cleaner/easier VisualHub is.
Also, I ran into something I couldn't figure out how to do on MF: encode an AVI to h.264. My DVR locked up (f@#$ comcast) while recording Shark; well my wife and I *must* (please no comments on our taste
) see it before the next new episode, so I acquired a copy of it, unfortunately it was in a format that seemed MF couldn't deal with (at least I couldn't figure out how MF could deal with it). So I just dragged the file to VH, and voila; that episode of Shark was now available on my Apple TV!
Have fun and good luck with your decision. Hope I helped!
PS - I own a 56" HDILA JVC TV. Just so you know what I'm outputting my Apple TV on.