There is a mencoder example on the Wiki, but I use an older example that was previously there:
mencoder -of mpeg -oac lavc -lavcopts acodec=mp2:abitrate=160 -af resample=44100:0:0 -ovc lavc -lavcopts vcodec=mpeg2video:vbitrate=300 -vf scale,harddup -ofps 12 -zoom -xy 320 infile.avi -o outfile.mpg
I sacrifice FPS (you can see I used 12 FPS) to get smoother playback with a higher resolution. The example scales to 320 pixels wide (fullscreen on an iPod 5.5G).