DVD to iPod touch (iTunes)?
The best, or, most commonly used method for transcoding DVDs and DivX files to an iPod would be Handbrake.  Handbrake has presets for almost all current iDevices.  I'd start by reading the Handbrake Mac GUI Guide and selecting iPod Touch from the destination presets (image on Stage 2 from the guide) and adjusting select a target bit rate of 700ish for a device with that small of a screen.

If you're interested in scripting out the process to save time Handbrake has a great CLI and guide that would streamline the process.

Another popular solution would be MacTheRipper.