I'll let Denaniel answer from his prospective but I can address the question from my limited prospective. As I mentioned earlier, the advantage of mp4 is the use of the more effective h.264 codec's (x.264 is the free version) compressibility.
The bit rate require to achieve the same image quality is greatly reduced...Denaniel mentioned in the tutorial it is about "about 50-65% of XviD". The result is that the video quality on a mp4 file, done correctly, is visibly better than one with Xvid. This is even true for extremely high 4,500+ kbps bitrate files in HD.
Personally, I think the advantage is more than just bitrate related, as to me h.264 more correctly represents the original image than Xvid. It is also much easier to obtain the optimal configuration compared to Xvid as a result of the new x.264 presets...slower, slow ect.
There are several downsides to h.264. First, because it is highly compressed it requires more CPU to decode, especially if the codec's internal deblocking is utilized. Ffdshow allows the user to select different levels of activating the internal deblocking architecture, which reduces CPU cycles.
The second downside is the lack of easy to use editing software. There are a couple of solutions to this problem. First, you can frameserve the file to VirtualDubMod using directshowsource...you need to have a codec like ffdshow installed. Also be aware that any settings that are selected on ffdshow such as resize or sharpeners will show up in the video you are frameserving to VDM. My personal experience is that VDM doesn't handle this too well and outputs as an uncompressed file. Sometimes I have to also use "converttoRGB()" to correct the image.
An alternative is to use
avidemux. I personally haven't used it but it handles a variety of containers (avi, mp4, ASF & mkv) and has features similar to VirtualDub such as a nice preview window.
As to the player compatibility issue with mp4, I personally have had fewer issues with wrapping in the
mkv container. So if you find player compatibility issues, try rewrapping the mp4 file in mkv...it is extremely easy and takes a few seconds. I'd recommend
mkvmerge GUI. It is user friendly and has a number of nice features.
The mkv container is superior to avi btw, allowing smaller file sizes through reducing overhead. You are probably aware of this but you can place Xvid files in a mkv container and shrink the file size. Mkv also handles VBR better than avi and allows to wrap subtitles within the container instead of having them as separate files.
MeGui also allows output as a mkv file as opposed to a mp4 file...so you don't have to go through that extra step. Personally, I think Denaniel's choice of mp4 is the right one as it is much easier, with the tools available, to change from mp4 to mkv than the other way around.