So I been working away slowly trying various things, and I have found that after using a handful of tools for converting my videos so that they work 100% on my PS3 I use the Auto Gordian Knot (AutoGK). It seems this tool is rather old at least the main application is, being that the latest stable release was on December 2005 and there is a beta that was worked on apparently November 2007.
The location of this nifty little tool is here: http://www.autogk.me.uk/
It's by far the easiest to use and the most straight forward, not to mention the only one I can get to work 100% on everything that's not corrupted that I throw at it. I have tried the tool from DivX and a few other various free conversion tools out there and none of them compare so far.
Only problem I have so far is that I have to convert the DVD first using DVDShrink (so as to create one VOB file) then after doing that based on the tutorial I have in this blog, I use this tool AutoGK to convert the VOBs to Xvid AVIs.
I set the AutoGK to use 100% quality, use source audio (AC3) and use Xvid codec with AVI as the container. The quality is not quite as good as the VOB's themselves, but it's nearly half the size even at 100% quality and it fast forwards, scene jumps and even works with the new "Scene Search" feature that was added in the 2.50 system update on the PS3.
If anyone has any other tools that just work out of the box, and aren't that expensive please add those to the post and I will post them later with my findings after playing with them for a while. I would really like to get a good HD conversion software to create really nice high def content perhaps in the Matroska (MKV/MKA) container.
Note: I do see that on the Matroska web page there is listed as the "best" Matroska editing software listed as AVI-Mux GUI but I notice all it does is combine files and does not do any converting which sucks.