Yes . . . actually I've always thought this was the only unintuitive thing about DVDfab. If you want to convert it for playback on a full-size television choose "Generic" as the profile. It should really be named "Home Theater" or something. After you click "Next" you can click the "Conversion Settings" button to determine the resolution and bitrate you want to use, as well as what Codec you want to use to encode, i.e, Divx, Xvid, H.264, etc..
You can do FAR better than VCR quality. I don't ever mess with the resolution/aspect ratio. I encode using Xvid at 1500 Kbps and my rips turn out very very nice -- close enough to DVD quality, rarely any artifacting even in very dark scenes. And a typical movie usually comes in around 1GB. I could do even better if I used 2-pass encoding, but my computer is aging and I'm happy enough with single-pass.
On Divx vs. H.264, don't listen to people who insist that one must be used over the other. But if you listen to any of them, listen to the Divx people. There are significantly better compression technologies out there than MP3 too, but if you want files that will not only be perfectly acceptable, but across the board compatible with every device out there, you encode music to MP3. Divx is as close as you'll find to a video equivalent of MP3. You can get very good results (even if not the best) from it, and far more devices support it. H.264 is making major inroads thanks to Apple, and the day may come when you're better off going with that format (and if the devices you use today play it, that day might be today), but at any rate it's not nearly so clear-cut as Blanka suggests.