See How to Share Folders (click on link). Basically just a matter of creating a folder for them, choose LW's share option in preferences & direct them to that folder.

Conversion of video files, well there's many techniques. If you have QuickTime Pro it's easy via using the Export function. There's also DivXPro but that again costs money. An alternative is listed here MPEG Streamclip (free) which is an editing program but also has export options.

More about video codecs here: http://www.gnutellaforums.com/tips-t...p3-fixers.html as some of these are for MacOSX also, such as DivX, VidX, etc.
Formats to choose would be MPeg 4 or H.264 or DivX would be best. Though some people do still use MPeg 2 to convert to, it's a bit low in quality & losing popularity. MPeg 4 & especially H.264 are much better formats.