|MPEG2 format would probably be good. You can get great quality and its the same format that DVD uses so if you wanted to put them on DVD later you wouldn't have to transcode them and lose quality.|
Large files are not constrained to 1 gig, they can be as large as you want unless you are talking about VOB files. Those will be broken up into 1 gig files but will play contiguosly on a DVD. Be aware though that if you plan to store large files on a hard drive with a FAT32 file system, it will only accept files up to 4 gigs in size.
Pause FF and rewind are properties of the media player and have nothing to do with the files themselves.