stop motion animation advice needed

Hello to everybody!

I recently discovered this website and forum. I'm definitely an amateur who
could learn a lot just by reading through your threads. Just started doing
some experiments with different techniques and often came across fundamental questions I can not find answers to.

I would like to make a short movie by using puppets and/or clay. Eventually I would also like to put it on a dvd an be able to play it with a normal dvd
player.

It is not much difficult to generate an avi or quick time movie by starting
from pictures I get with a digital camera by using the stop motion animation
technique. For example one can use many applications (Adobe premiere or even Flash) to export the frames to a movie. However the setting I have to choose to get a final clip with an acceptable picture quality produces very large files.
I'm struggling to find a program that could compress the file down to an
acceptable size. I used VirtualDub (free application: www.virtualdub.org) to
compress to divx format (already much smaller than the original avi). But this isn't enough yet. As a matter of fact I reckoned that a five minutes long movie with 24fps, 1260x848 pixels image size, would take about 500Mb disk space!

Here are a my questions:
How do you get an acceptable picture quality with a
reasonable file size? What is the prefered file format (file type) for
animations. What is the usual frame size in pixels and what compression you use? Do you know any software used by stop motion animators to put the frames together in a movie?

thanks a lot!

negun