Sorry, I am unfamiliar with FormatFactory.
It could be that your 605 is missing the archos Cinema (for VOB/Mpeg-2 playback) or Podcast (for H264 playback) plugins?
In my limited experience with encoding my own DVDs, I can say that for movies that will play "out of the box" , you can try using the AVI container with the DivX or XviD for video codec AND the MP3 audio, as long as you don't make the resolution so big. Also, most of my encoded files are in the 700 - 900 Mb range, with very, very few in the 1.5 Mb range.
For example, I use Handbrake (freeware), with the "Ipod High-Rez" preset to encode a movie with video enoder: XviD, audio: MP3, file container: AVI, and will use the default resolution: 640 x 272.
(which will yield a typically large file size, only because I like to sometimes be able to ouput the file to big plasma screen tv)
You can get Handbrake here:
http://handbrake.fr/downloads.php
I've also used FairUseWizard with some good results, providing you keep the encoded file under 700MB (contraint for the freeware version) and here is a good turorial, here:
http://forum.archosfans.com/viewtopic.p ... se+dummies
Don't get too discouraged, I myself ran through several trials and tribulations, trying to find a good method for video encodes and I had many failed attempts in the beginning. If I ever get around to upgrading to a faster computer, I might invest in one of the paid software combinations such as PocketDVDstudio and AnyDVD (instead of DVDdecrypter). Part of the PocketDVDstudio ad that got my attention says:
"300% faster speed than any other products with better video quality! Easy to use, designed for dummies" (LOL

)
I hope this was helpful.