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If the file is a high quality dvdrip just install the codec and leave it as is.If the quality looks like crap it's because it was encoded that way and can't be made to look better.
 

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Isn't the film effect on by default? If it is, I recommend disabling it as it adds a little noise to the picture. If you have a movie that is really blocky you might want to turn it on though. Also turn on full processing if you have cpu power for it, it can remove some edge-shadows and other artifacts.

On the quality settings page also enable everything if your videocard supports the options...

Also I recommend taking a day or half a day reading the divx user guide:
http://download.divx.com/divx/DivXUserGuide521-en.exe

You'll learn alot about video encoding/decoding and the mpeg-4 standard.
 
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