Since MPG files are already compressed, the resultant output will probably be pretty poor.
try playing around with the bitrate/frame rate in wmm...(don't use wmm so don't know how it work)
If you're committed to mpeg1, then ffmpegX does a pretty good job of encoding very low bitrate mpeg files, although the quality doesn't match the original one...but i think ffmpeg cost around 20 buck (google to see)
Otherwise you would demultiplex (split video and audio) but this step is too hard...