The trade-off between size and quality is a personal, subjective one. What you are doing there is transcoding an already-lossy-compressed video from one format to another. An analogy would be recording from one VHS tape to another: the source will have some imperfections in it which will be recorded onto the destination, in addition to new imperfections.
How big are your source videos? For archiving, I would recommend storing the best quality you have.
Other considerations are the longevity and availability of software to play back the format you choose. x.264 and mp3 (your choices, above) are not bad, on that score.
A useful set of articles for this subject are Mark Pilgrim's "A gentle introduction to video encoding": http://diveintomark.org/tag/give