If u wanna play around with the file, tweak with the settings of encoding then i think virtualdub mod is ur best option. Its a freeware and gives u complete control over d encoding parameters. Just download the required codec. or better still just install a codec pack like K-lite Mega Codec Pack
But frst uo will have to convert d VCD to an *.mpg file usng sw like VCD Gear
ps:- just a suggestion. use d x264 codec instead of xvid. usng it u can mantain VCD quality even @ bitrates of 325-350 kbps