Actually, if you use the command line below it should work very well for you (no space between Xvid and -fast).
"%InputFile%" -quiet -profile Xvid-fast -o "%Output%.avi"
I have an Archos as well as this is the profile I use. Without seeing your whole command line I can't tell for sure, but I'm guessing it isn't actually using the Xvid-fast profile, so that's why the files were so big. Using the Xvid-fast profile, Mencoder should compress an hour show to roughly 300MB.
I setup an overnight job to convert my 4 hours worth of nba games using the xvid-fast profile, will see in the morning if the 1hour=300 megs will hold up, doubt it though. I also tried several runs with the param string u specified above, if I just have the %Output% it does not write out the file since that does not produce a proper path. I've changed that to OutputFile and it produces the output path specified in the GUI version, I guess I need to read on the mencoder params section to get this whole thing converting and outputing to proper folder... I'm sure with your help and my patience I'll get it working over the weekend. Thanks!