I've used many tools to convert MPEG (1 & 2) to DivX/XviD and the best and simplest I've come across is AutoGK. AutoGK is the equivalent of your compact camera - doesn't have all the controls of an SLR but still gives good results.

AutoGK comes with all the necessary tools and codecs (XviD 1.1.0) to allow you to convert your MPEG1 & 2 to AVI format.

Check it out here: http://www.autogk.me.uk/

One thing to bear in mind though, is that .DAT files are not pure MPEG1 and therefore AutoGK will not be able to recognise it. You should use VCDGear to extract the MPEG1 stream into a .mpg file first.