Digital video is a conundrum. Consider how simple it is to pick an obvious format for both digital photos and music. Consumer-grade digital cameras use the JPEG format almost exclusively, and while that format is lousy (not to mention lossy) and in desperate need of replacement, the reality is that it's highly compatible with whatever software or devices you may use, so it's still the obvious choice. Likewise, with music, MP3 is the obvious choice for compatibility reasons as well. It just makes sense. (See One True Music Format for details.)
Not so with video. First, video files are themselves humongous, so the very notion of copying digital versions of your favorite DVDs to a PC hard drive, for example, aside from being legally questionable, is still technically untenable: Encoding times are lengthy and painful, making that process tedious to boot. (Moving forward to HD video is even worse, of course, given that a typical HD film is many times the size of a DVD version.) File size constraints will limit the quality of the resulting videos, since users will need to find a happy middle ground between performance, quality, and file size.
And when it comes to compatibility, the field of possible video formats is a mess. There's simply no easy way to choose a single video format, unless you have so thoroughly bought into one technological path. And I don't believe now is the time to do that: The video market is in flux at the moment, and it's unclear where things will end up.
What this all means is that anyone who wishes to maintain a digital collection of videos, perhaps ripped from DVD, is going to face serious issues on a number of levels. From what I can tell, there are four viable video formats for the future: H.264, Windows Media Video/VC-1, DivX, and Xvid. Each has various strengths and limitations. But each, again, comes with serious compatibility issues today.
My choice: H.264
Given my preference for Microsoft-oriented technologies, you might be surprised to discover me settling on a video format that was designed by the software giant's competitors and is essentially the technical byproduct of a cabal of companies seeking to charge others exorbitant licensing fees. (In business-speak, this means that H.264 is "an international standard.") H.264 is essentially a version of MPEG-4 that's been fine-tuned for portable devices, though it supports HD resolutions as well. It is sometimes called MPEG-4 Part 10, in keeping with the strange naming convention used the Moving Picture Experts Group (MPEG).
Like most MPEG-4 formats, H.264 offers high quality video at relatively low bit-rates and reasonable file sizes. More important, perhaps, it is compatible with a wide range of software and hardware products that exist both in and outside the Microsoft ecosystem, including such things as the Sony PlayStation 3, the Xbox 360, the Apple TV and iPods (including iPhone), Apple's QuickTime and iTunes software, Microsoft Zune (hardware and software), and much more.
The problems, however, are many. First, H.264 is not natively compatible with some core Microsoft products, including any versions of Windows Media Player (WMP) and Windows Media Center (WMC). This is not an insurmountable issue as it's possible to add H.264 to WMP with free third-party add-ons. (What's not possible, to my knowledge, is playing H.264 content via an Xbox 360's Media Center Extender (MCX) interface. This issue is offset somewhat by the fact that the Xbox 360 can play H.264 content natively through its Media Blade interface instead. That said, other Extenders cannot play H.264 at all.)
Second, even within the range of H.264 compatible devices, there are serious issues. If you want to encode video that will work on an iPod or iPhone, for example, the horizontal resolution of the movie cannot exceed 640 pixels. This means that videos you encode in H.264 either have to be sub-DVD quality or they won't play on the world's most popular portable devices. These 640 x whatever videos look wonderful on an iPod, and decent on most PCs, especially laptops with smaller displays, but they look terrible on HDTVs, with noticeable banding, pixilation, and other visual artifacting.
And video, again, is not like music or photos. While it's possible to convert, or transcode, video from one format to another, the process is time consuming and fraught with problems. Aside from the usual issues inherent in converting from one lossy digital format to another, video conversion often results in the destination video losing sync between the video and the audio. This is disconcerting, undesirable, and completely unacceptable.
Other video formats of note
H.264 isn't the only video format vying for your acceptance. Here, we find some established old-timers that still have a lot to offer, including one that's being evolved to meet the standardization needs of the future. These are a few video formats to keep your eyes on, or possibly settle on today if you're ready to make a bet.
Windows Media Video/VC-1
As Microsoft has so ably demonstrated, its Windows Media Video (WMV) format offers high quality at relatively low bit rates, comes in HD variants, and, best of all, works natively with the company's Windows-based media tools like Windows Movie Maker, Windows DVD Maker, and Windows Media Player, as well as free add-ons like Photo Gallery. It's also widely compatible with non-Apple portable devices, Media Center Extenders, and other set-top boxes.
Microsoft has successfully pushed the latest WMV version, WMV 9, as part of an SMPTE standard called VC-1. Support for this standard is included in all Blu-Ray and HD DVD hardware. Because the WMV-derived VC-1 is a standard, like H.264, it's possible that it could achieve more widespread use in the future, both via PC software and other hardware devices.
Beyond its integrated support in Windows, WMV is most often found on video rental services such as MovieLink, CinemaNow, and, most recently, Amazon Unbox. Home users, typically, will use tools like Windows Movie Maker to convert home video tape into a more manageably-sized digital format. Quality WMV-based DVD ripping tools, however, are rare. And WMV has been passed over by the movie pirates in favor of formats like DivX and Xvid.
DivX
An MPEG-4 derivative, DivX offers excellent compression and reasonable file sizes, making it at least passingly competitive with H.264. But DivX is most commonly associated with DVD rippers and torrent-based video piracy, and has thus not found widespread acceptance outside these enthusiast markets. You can download the codec from DivX. It is proprietary software but is made available for free.
Despite more modern alternatives, support for DivX appears to be improving. The new generation of Media Center Extenders shipping in late 2007 will actually offer native DivX support, which is an interesting problem as that support is not (yet?) present in Windows Media Player or Windows Media Center.
Xvid
Essentially an open source version of DivX, Xvid (formerly "XviD") is also based on MPEG-4 and offers comparable quality and file sizes to its proprietary competitor. (Some have found Xvid to be somewhat superior to DivX, actually.) Because they are so similar from functional and quality perspectives, DivX and Xvid are often lumped together (DivX/Xvid). A more advanced version, Xvid AVC, based on a more recent MPEG-4 implementation, is in the works.
There are some complicating factors with Xvid. Like DivX, the format is most often associated with video pirates and DVD rippers. There are some legal issues surrounding the format as well, because previous versions allegedly violated various software patents. These legal issues are believed to be widely settled with the most current Xvid version, however.
As with DivX, next generation Media Center Extenders will support Xvid format. You can download the Xvid codec from the Xvid.org Web site.