Thanks so much BenB!
I know it causes the quality to drop, but I am not using THOSE converted files with FCP!
What I am doing is selling video clips on two different websites.
On my own website I want the video clips to be as high quality as possible, without getting too much bigger than the original MPG files. And if I have to edit the clips before putting the final product on my website, I will definitely follow your excellent advice and go with ProRes for the FCP.
Even though a 1.6 gigabyte file wound up being more than 10 gigabytes after conversion! It was a long video, about 37 minutes. But hey I can always make the export file from FCP smaller.
But no--the ones that I am using the iPod settings with are being sold on another website (not my own) that actually requires the files be that small! They do not care about the quality of the video, they just want to sell a lot of clips (mostly to Europeans I guess).
When I convert the files for my own site, and don't have to edit them (which is about half the time), they wind up a little bigger than the original files. I have carefully checked them so that the quality appears to be the same, even if maybe not so good with FCP or editing.