1. Yes, there is plenty of good reasons. 640X480 content looks a whole lot better on a TV and on a computer. Not only that but a 1.5Mbps (1500kbps) 480X320 video takes up the same amount of space at a 1.5Mbps 640X480 video. So why not use the higher resolution?
2. I use 1.5Mbps (1500kbps) because that is the iTunes Store standard, the videos come out at near-DVD quality, and they look great on a computer or TV. I have tried encoded at sub-1000kbps video bitrates before and they just don't look good on my TV but they look OK on my iPod touch.
3. The FPS should match the source material. NTSC can be encoded at 29.94 FPS while PAL content should be encoded at 24 FPS. You are getting that judder affect because DVDfab is trying to add frames to the video that just aren't there. As for quality, this is all subjective. I do know that DVDfab is easy to use but it doesn't produce the best quality. I use it often to rip a DVD to my computer's hard drive but that is it, I don't let it encode anything. I personally prefer Nero Recode 3 as it is just as easy to use, it offers visual cropping as well as automatic cropping, it can automatically determine the best resolution for you to use, and Nero's mpeg-4 AVC and AAC audio encoders are really top notch and very comparable (ie equal to or better than) the quality that QuickTime Pro offers. Nero Recode 3 isn't free though but it is worth every penny since it can do everything automatically for you, you just have to put in the video bitrate that you want to use.
64GB iPhone 5 | 64GB iPad mini | AppleTV 2 (2012) | AppleTV 2 (2010) | 2012 15" MacBook Pro, 1TB SSHD, 16GB DDR3 1600 MHz, OS X 10.8.3 Mountain Lion | Apple Lossless | iTunes AAC 192kbps VBR | iTunes 11.0.2| Library size = 1.04TB | Legacy iPods: 3G 40GB, 4G 40GB, 5G 60GB, 160GB iPod classic (2009)