DVD ripping: What is best video codec? h264 vs DivX vs Xvid? Best container: .avi? mkv?

add gspot to your itinary for testing purposes
http://www.videohelp.com/tools?toolsearch=Gspot

All of the above I listed will play mpg, if you wish to use WMP because it does not nativley support DVD playback  ie mpg installing the ffdshow codecs imbedded in both the VLC and media player classic will allow WMP to play mpg then too and you'll be fine.
what I do is use a video card with TV out and set the secondary monitor in your case
 TV in mine at full screen this way the media player on your desktop remains small but the secondary screen is full screen.
it will auto adjust for best picture.
Secondary monitors usually run at 640x480 ..low 8 bit because of the pixles on the TV is different from the computer scren.
How and what you use to connect the first default monitor to the seconds is important, you can workaround by using a DVI connector or VGA which ever is available on your current system
http://www.microsoft.com/athome/moredone/twomonitors.mspx
http://en.wikipedia.org/wiki/DVI
HD monitors are also available.

I also just take one vob and copy it off the DVD. rename it mpeg and use that to as is or re-author it Nero vision or convert it to mpg in Super.
There are many tools to backup a dvd to the hdd so you can work with the vobs individually.

The obvious question is why are you doing this?
DVDs are in SD (Standard Definition) 720x480 NTSC, 720x576 PAL.
Sony has a very good DVD player/upscaler (as do other companies) that does an amazing job of upscaling standard DVDs for 1080p display. Haven't tested the other brands but the Sony is bloody amazing!

DVDs are encoded using the MPEG-2 codec, which is a brilliant codec but uses twice the storage space and transmission bandwidth of H.264. However I've found that not all software behaves itself as it should on domestic PCs using H.264, which, by the way, is a Broadcast standard codec.
I personally don't see any reason to encode the MPEG-2 format into Divx or Xvid.
I have no idea how you would be able to upscale your ripped DVDs to 1080p to  play on a VLC PC player and retain the digital audio surround etc. Sounds like a lot of mucking around to me. You're at least going to need optical or digital coax or HDMI outputs for a start.

Bottom line: I wouldn't go mucking around in any way by changing the MPEG-2 format on DVDs. It is a brilliant codec and container format, as is the commonly accompanying  audio -- often Dolby Digital AC3 5:1.
Blu-Ray encoded 1080p movies use the newer H.264 format and Microsoft's VC-1 codec, and also have the MPEG-2 codec for playback and upscaling of SD movies to 1080P.

Well how I would do this is not necessarily what you would want.
Is hard drive space any problem?
These DVD you currently have how is the structure of the video?
Are they individual clips that you can split out of the main video?
explore the DVD you have> take a look at the individual vobs.
If they can be played individually as is with no problems of a beginning and ending. then you could just copy each vob you want to your hdd.
There is many choices here but it depends on the current structure of the video on the DVD.
Do you need to convert the entire DVD so you split it into segments or can just use the individual vobs?

Use DVD Shrink to back the entire DVD up to your HDD, then work with the segments
create a new folder in C drive must be in this directory for the TEMP folder for Shrink. You can take them out of here once it's finalised.
Change the output  in shrink to store on the hdd instead of burning to disc ..
You'll now have your DVD in Vobs on your hard drive.
download
http://www.dvdshrink.org/what_en.php
How do I use DVDShrink?
http://www.dvdshrink.org/how_en.php

Super already suggested can convert individual vobs to mpeg and play like that, these are like a mini video then.

I have already provided the necessary steps to connect your PC to secondary monitor
Is this from a Laptop or desktop?

you need a video card that supports 2 monitors.
 DVI connector
http://www.microsoft.com/athome/moredone/twomonitors.mspx
matrox dual head
http://www.matrox.com/graphics/en/gxm/products/dh2go/home.php

Yes any ripper will render the files to VOB files as Merete has said. These are really MPEG-2 files so all you have to do is change the extension to MPG and you have instant MPEG-2 files.
You really should have an editor. I uses Ulead Video Studio 11 Plus. With this you will be able to cut out the bits you want. Finally you have to decide exactly what resolution you want to save the new files as, and which player you want them to play in. Decide whether you want Windows Media Player, Quicktime or VLC. My recommendation would be to save to DVD resolution, which is as listed above.

Does your second monitor have inbuilt speakers either side of the screen?
if so they will automatically have sound with it.

Otherwise a set of speakers will be needed for the second monitor.
speakers need audio cables and probably a joiner to add length.
you can buy small satelite speakers for PC from any good harware store that have a nice sound can be mounted on the wall  inserted into the celing or just standing ..
run the audio cable from the speakers to the rear of your tower and using an audio double adapter connect it to the same line out as your PC speaker.
Adaptor, 3.5mm Stereo Plug Male - 2 x Mono Socket Female
http://www.cableuniverse.co.uk/catalog/cables/adaptor-35mm-stereo-plug-male-2-x-mono-socket-female.html
If you need more length add RCA Double Female Adapter so you can extend the audio cable.
http://www.showmecables.com/productDetailsPopUp.asp?idproduct=1457


I just used the audio double adpater illistrated in my link... it's a cheap way though to get audio to the PC speakers on the 2nd monitor
but there is a more professional approach wireless, not always reliable though
2.4GHz Wireless Video Audio Sender Transmitter Receiver
http://cgi.ebay.com.au/2-4GHz-Wireless-Video-Audio-Sender-Transmitter-Receiver_W0QQitemZ150224089327QQihZ005QQcategoryZ39835QQssPageNameZWDVWQQrdZ1QQcmdZViewItem