If you want to retain DVD-quality you would be best just keeping the AC3 audio track, any potentially keep the video track too. However that would mean a large file size.
If you want MPEG-2 as the video format then, you might as well do no converting and just copy/extract the original video track (which is MPEG-2 anyway). There wouldn't be a lot of point in converting it, unless you want to have a smaller file in which case other codecs (such as XviD and x264) are better.
If you want to keep e.g. 5.1 surround sound audio the best thing would be to just copy the AC3 audio track (and not convert it). Otherwise, both MP3 and AAC are good audio codecs. AAC is the only one of the two which can have e.g. 6 channels, however if you intend on keeping e.g. 5.1 you might as well (as I wrote above) just keep the AC3 audio track.
Arite.