I was experimenting with settings and here’s what seems to be working:
video – main concept mp4, ipod 320×240 video with:
Audio: 64 Kbps, 48,000 Hz, 24 Bit, Stereo, AAC
Video: 29.970 fps, 320×240 Progressive, YUV, 192 Kbps
Pixel Aspect Ratio: 1.000
vbr – 1pass
Seems to be good enough quality with greatly reduced file size.
I hope this can help others.
Gilles