Auto Gordian Knot is another, free, encoder. It works with either Xvid or DivX, but I only use Xvid on mine. It's not hard to use, but I set it so that it take between 700Mb and 1Gb per hour of encoding and it's looks fine to me.
Not sure about the DTS but you can have AC3 fine, although I've never messed with it as I've only ever encoded Xvids with CBR Mp3 sound.