The awesome part is how I'm now using H264. Before, I didn't trust the quality since on my Windows 7 installation, I didn't use VLC and WMP distorted the video. H264 is a powerful, modern codec for video that performs really well. The output video file I got is actually incredibly small and looks great. Basically any bitrates between 800 and 1600 produce decent picture quality and file sizes. I think on average, the x264vfw codec creates files ~30% smaller than what the old xvid codec I was using did. When using VirtualDub, I would definitely recommend this compression. Seriously, give it a shot!
Here is a video I recently recorded and compressed with H264. It turned out to be 18.5 MB!