I would advise not to compress before you edit, the whole point of working with high quality footage is to have high quality, which you would lose if you compress at this stage. I would advise to vid in VOB and then compress the completed vid to whatever format you like. I always render uncompressed (I'm using SVPro) and then convert with a converter program which seems to yield better results, but you can also compress with the editor during rendering. It's normal for an uncompressed vid to have around 5-10 GB sizes.

Either way, the programme I use is Total Video Converter, which offers a lot of control and around 40 different formats, including HD capability.