I'm not advocating, just letting you know it works:
I tried it, it works ...and xvid support is pretty much out-of-box. Yes I'm still working on the xvid/divx howto for YD but I wanted to try.
1) Use a progressive resolution
2) Configure mplayer to use X vice Xv (no support for Xv?
3) Burn to a DVD even though the iso will fit on a CD
Here's a pic:
http://img293.imageshack.us/img293/6933/img1025yz8.jpg