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Compression

What settings should be used to keep the file size to the bare minimal in AVI mode? Is there any external programs I can use to compress it even further? How are programs like VirualDub work, and should I use them to compress it even more (same goes for Windows Movie Maker for the last part)? Is there a point where compression can make the video unwatchable? Is there a "maximum" of programs I should use to compress before something bad happens to the video?
Basically, how can I end up with the minimal file size before Te video becomes unwatchable?

Thanks for your help!

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