MP4/M4V. MKV works but I use Handbrake to burn in subtitles, since I find the subtitles lags a bit with any player, and Handbrake only supports converting to MP4/M4V.
Well they're probably just quickly converted after being ripped, hence the large file size, and maybe to retain as much quality as possible. As for the MP3 and WAV thing, for things like portable devices you won't hear much difference between the two, but with a proper sound setup, You can tell a difference between the two formats. Can't remember where I read it from but compressing a music file to the MP3 format "apparently" loses as much as 90% of the quality, but most people won't be able to tell the difference. Also back then, space was small and vital, and MP3 saved a lot of space. After a few years it became the standard. We have a lot more space in our devices now so it won't suprise me if another larger, higher quality format takes it's place in a few years (FLAC seems to be getting popular).