paprmh is right in this point: you should only compress the final movie.
If you are going to work on it (edit, add special effects etc.), then I would suggest you to use the targa sequence (the best choice in my opinion) until you have the final movie. After doing all the work, you can use Blender or Virtualdub (other great program) to encode (compress) the movie.
If you work with compressed files all the time, it means you are going to compress a compressed file several times and the result will be a poor quality video file.