Suggestion for Encoding / Containers

[igeekus]

Okay, all of these containers / formats are getting a bit confusing and, while I am a geek, I'm still very much a newbie at this.

My apple tv just isn't cutting it, so I'm looking at getting one of the new mac minis or one of the NVIDIA Ion based computers when they are available. Either way, I plan on running XBMC for linux to get GPU processing assistance (VDPDU or something like that I think it is?)

Anyway, a couple of questions:

I'd like to get my collection onto a server. For DVD's, once I've ripped the movie into an .ISO, I use handbrake to convert to m4v format. I'm not sure if this is the best program/format to use? (Should I be using mkv? mp4?) I'd love to keep DTS, but prefer at least 5.1 surround ability. What can I get away with for compression settings and still have a picture that looks nice on an HD tv. (Obviously the best picture would be keeping the VIDEO_TS folder, but what can I compress to and still keep most, if not all of the picture quality?)

I also am dabbling with Blu-ray with my ps3. Will whatever container recommended above work also for HD content? What about sound?

Thanks for the suggestions