Since this is beyond a doubt one of the most often asked questions, it certainly deserves an answer. The default settings will very likely get you good to excellent results on 'normal' source material like DVD's. If you like a more thorough answer than 'just stick with the defaults' you can follow some of the guidelines mentioned below.
However, they are not the 'ultimate' settings for everything as there's simply no such thing. Feel free to deviate (yes, become a deviant!) and experiment with the settings once you feel more confident using XviD. Using XviD always requires you to use your own judgement up to a certain point. The settings below are very safe and are here just to get you on your way.
You have three options here. MPEG sharpens the image, and is good for basic high-bitrate (>1000kbps) encodes, and H.263 softens the image which is better for medium-bitrate (800-1000kbps) encodes. The last option allows the entry of your own custom quantization matrix, which is recommended to maximize quality.