First may I suggest a spindle and a copy of DVDshrink or DVD rebuilder, it is far less hassle this way (not to mention quicker and you are able to take stuff to friends easily).
Alas making high quality encodes H264, AAC, text based subs..... will take some effort but it is doable, once you have an idea of what is going on it is practically all automated as well (if damn slow).
I use megui but I tend to use it more in the capacity of a x264 frontend than the encoding tool it really is.
Still the following method is actually what most automated tools do.
Rip the DVD: due to DVD being a standard protection has not changed save the introduction of disc corruption (your player "should" get pointed to the correct place while the ripper encounters errors.
DVD Decrypter should do most except for some of the newest DVDs that use structure protection, for those I suggest either riptit4me or DVDfab.
The first two got taken down but are still readily available over at
http://www.doom9.org/ and the forums there (or you can tap me for them). DVDfab can be grabbed over at
http://www.free-codecs.com/ , you will want the freeware version.
Shiny VOBs:
Get them out of vob, analyse them and go for the next step. Theoretically you could skip this but would likely take a quality hit.
DGindex:
http://neuron2.net/dgmpgdec/dgmpgdec.html
You will get a dv2 file to open with AVIsynth (megui and several encoders can also read them as well).
If you need to deinterlace I prefer DGbob as it is good quality:
http://neuron2.net/index.html
Encode stage:
Megui I already mentioned, grab at the bottom of the page:
http://x264.nl/
It does SNOW, Xvid, x264 as standard for video. Choose options and get bitrates set via the inbuilt calculator.
Audio:
I suggest eithe mp3, ac3 (leaving it as it is on DVD unless you want to downmix to 2 channels for space) or AAC.
LAME, aften (both included) and neros encoder (grab it here and stick it in the directory:
http://www.nero.com/nerodigital/eng/Nero_Digital_Audio.html ) are my choices. For 2 channel highest quality I suggest a minimum of 128, 96 and 64 kbits/s.
An MKV muxer comes included but I use MKVtoolnix:
http://www.bunkus.org/videotools/mkvtoolnix/downloads.html
Subtitles:
DVD subs are pictures which can be several megabytes in size, text however is but a few kilobytes so you will want to OCR them:
Subrip
http://zuggy.wz.cz/
Subtitle workshop to fix the errors (ll will often become ii and such), inbuilt error detection for that and a spell checker do wonders for me:
http://www.urusoft.net/products.php?cat=sw