Well, you can try converting the files into *.avi-s. For this, I use the Xilisoft video converter, which handles most of the video filetypes and is generally a great tool.
As for creating a DVD disc, I think your most simple solution would be using Nero, selecting New-DVD (Video) (or something like that), adding all the video files you want and burn the disc.
Does that help?
I had similar problems with files from a Nikon camera which were in the .mov format. So, I used this program to convert the files into an HD .wmv format. I also didn't have to shrink the files any to make it work. The only thing to keep in mind is setting up the settings properly:
Now, you do have to pay for this program, but it will update for free whenever they patch it or make changes to it if you want it to.
I've just realized-- the PB screen is 1024x600! Video encoded at that resolution will look best on-screen! I've been converting stuff with the Xilisoft Video Converter and it's amazing. (and spectacularly fast on a fast system!)
I just started using Xilisoft Video Converter. It is amazingly great. See this comment on it.
IMO Xilisoft makes a great video converter: HERE
Also, there is a free program that actually works quite well with no watermarking, etc: Quick Media Converter
I think that mp4's are the best formats to convert videos too as you can stream them to most any device, android phones, xbox, ps3, and w7 phones. If you're just looking for high quality low size files to watch on your comp, Matroska files (MKV) is probably your best bet!