- Clone the DVD in its entirety -- so everything is preserved
- Rip the DVD to some suitable container (MP4, DIVx)
I would personally go for the latter, and in fact is what i am doing. MP4 is a pretty good format in terms of quality and has the additional benefit that most devices will accept MP4s as is (iPods, Zune, etc)
As for file systems the ideal would be FAT32 as all OSes read them natively, But FAT32 has problems with files bigger than 2GB. What you could do is use any native OS file system on the storage (ext, HFS, NTFA) and then avail the files as a share using SAMBA.