I thought I would let people know my experience using Handbrake and encoding The Matrix for my PS3. I have decided to rip movies to my hard disk, and use the original CD as my back-up media. I only do this for movies I own, and I hate piracy.
First, I ripped the movie to my hard disk using MacTheRipper 2.6.6. From there I loaded up Handbrake and started encoding. I was originally using the HB-PS3 preset, and then choosing 2-pass encoding, this didn't work for reasons discussed here:http://handbrake.m0k.org/forum/viewtopic.php?t=2466. So I ended up just using the HB-PS3 preset, without modification for my first try. I have since created my own HB-Universal preset that should work on my PS3, XBOX360 and on an AppleTV should I ever get one, but I won't get to test the 360 part till later today.
The output movie was 2.4Gb and would play fine using QuickTime 7 under OS X. The movie played fine on the PS3 from the external USB hard drive, once copied to the internal hard drive I was able to set a 15-second clip of the movie for its icon (I naturally chose the Matrix code at the begining

I have a 37" LCD 1080p Toshiba, and when on "normal" setting, the full screen was used (with normal black bars at the top and bottom). The quality was okay, but not great. The "original" setting on TV played the movie back at the normal SD resolution in the centre of the screen, this was obviously perfect quality, but only filled a small part of the screen.
I haven't compared it to the original DVD yet, but I don't expect it to be too different at the "normal" setting.
The sound was only 2-channel, which I was a little disappointed about, and need to try and work out why, at the moment I don't know if this is the way I have encoded it or the player in the PS3. I will be able to check this out later if the Universal encoding works and I can play it on the 360. I am hoping to get 5.1 sound from the movies I encode. [UPDATE: I have since found out that the sound is probably Dolby Pro Logic II, and the PS3 can't play 5.1 AAC anyway, so DPLII is the best I can get.]
So far I was fairly-happy, but the part that blew my mind was the remote play using the PSP. I was able to play the movie over my home wireless network displaying on my PSP and the quality was perfect. I don't just mean good, it was perfect. I am guessing that using the new PSP's TV out funtion, there would be no problems at all playing a movie wirelessly on a standard definition TV with little loss of quality.
Later this week I am going to try to test remote play over the Internet. I don't expect it to be as good, but I am keeping my fingers crossed!
If I can get the sound sorted, and a movie format that will play on both my PS3 and 360, with each movie between 1.5Gb and 3Gb then I will be happy to use my external hard disk to store all my DVD's, primarily for playing using my PS3.
My thanks goes out to the developers for all the work they have put into Handbrake!