This will give you an idea of how iTunes organizes your music when you tell it to. I personally like it this way because it's all organized into one place and one "package" on a Mac. Not sure how it does it on Windows, but it keeps everything nicely compartmented.
Be careful when calling the formats "proprietary". MP4s are not proprietary, they standard video formats. They're much more efficient than some of the other video formats.
I use Handbrake to convert movies. With the settings that I use, most DVDs convert to between 1 and 2 GB for the entire movie.