whats the use of converting blu ray to xvid ? Not to be sarcy, but if you have a blu ray player, I would advise you to use that.
COnversion to xvid or divx will lead to loss in quality. It also depends on the profiles used for encoding and the bitrate.
Using a better source like Blu ray, may definately result in better quality but dont expect details like Blu ray itself. You may look to alternate options like encoding using x264 ( or any other H264 variant ) and try using a different stand alone player liuke the WD HD media player that suppirts HD playback with mkv containers.