MPEG-1 convert to WMV or leave it?
 

I have a few movies in MPEG-1 format, I want to convert it to WMV format, to save as much space as possible without sacraficing the video quality.
I did a test run with ProCoder 2 and was very unhappy with the result, with the highest setting for video quality selected, I was able to trim the file size by 20% (rough estimate), but I was not pleased with the quality.
The original source is vcd, so there are some pixelation, but the video was sharp, WMV was blurry. Here are my settings for ProCoder2:
Video Codec: WMV8 and WMV9
Frame Rate: 15
Bitrate mode: Quality Based VBR
VBR Quality: 100
Audio: 96kbps CBR, 2 passes.

Test File:
Original MPG (7.4MB)
After WMV *using the above settings* (5.8MB)
As I mentioned above, the quality loss of the video was very noticable. My goal is to save as much space as possible WITHOUT the loss of video quality.
Is it possible? or should I just keep the original source in .MPEG-1 format?
If yes, which program would you recommend and what settings?
Thanks in advance

i'm not an expert, but I think this will be difficult without the original DV, or at least a much higher quality format. Mixing down from an already poor format is just going to make it worse.

Yeah, that's what I was afraid of.
Well if anyone have any method they think I should try, post them here.
I want to preserve the quality as much as possible, whatever space I can save is a bonus.

get a program that will let you adjust bitrate if yours dosent. 700kbs/sec wmv will produce nice quality

I have done this before with a cheap program called Pinnacle Studio. I opened the MPEG in it and set my WMV settings and it came out fine.

Every now and then it will crash the program but 95% of the time it works for me.

you better get sony vegas or adobe premiere. then you are sure you got all the options you need and you can download it for free and use it fully for 30 days

I have pinnacle and I never saw a way to make them into wmv's...Mine does mpg by default

you're recompressing something that has already been compressed, there by making it a 4th generation file...

If you want to make a good quality WMV file you should only compress the original DV movie, and not a MPEG.

ProCoder have this option, I already tried encoding it at 845 bitrate, again the video was blurry compare to the original video.
I'll try my luck with other software as suggested. Thanks for all the help

At this point, I don't think it's possible to convert an already compressed video to a more compressed format without making it look worse.