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MPEG 1 uses a DCT-based encoding scheme similar to jpeg but with adaptions for compression between frames. MPEG 2 is similiar to MPEG 1 so you won't get much better compression.
MPEG 4, the latest version of the MPEG standard, uses wavelet compression, a much newer technology that gives much better compression at the same quality. WMV 9 is based on the same technology and gets similar compression and quality. The problem is a lot of people have to download new decoders to watch these movies.
That's the background. I prefer WMV 9 myself for size and quality of the video.
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Somebody stole my damn signture...
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