I pretty much spent the whole day yesterday doing some research. I found and am now using a program called MCEZ Sort that automatically renames and sorts if you wish shows names. You can changed the format you want containing the season, episode numbers, and even the episodes name. For example: "My Name Is Earl.S04E10.Earl And Joys Anniversary". This way XBMC can scrape the files properly!
Then I have MCEbuddy rip the commercials out and compress them (using no resize and 2 pass) into H.264 in my XBMC "TV Shows" directory. I am setting it up to be automatic by creating a scheduled task. Pretty cool stuff.
Just FYI on the size reduction...so far I am seeing WTV files about 3.5gb getting shrunk down to ~ 350-425mb using the settings mentioned before (comskip, no resize, and 2 pass)!! It does take a bit of time using these settings though...then again I have like 250gb of recorded shows to be converted. Once through this big chunk, nightly maintenance of newly recorded shows won't be so bad.
Now if I had a usenet account to download non OTA shows with Sick Beard, the setup would be awesome

Live TV would make xbmc a total package for me...until then I will use WMC 7 with these programs.
For those interested, here's a link to download MCEZ:
http://rs78.rapidshare.com/files/2475314....0.1.7.zip
I would set it to run 2 or 3 times before MCEbuddy does its thing. I noticed that sometimes it will skip some files the first time through. Make sure you edit the config before use for things such as setting it true to use WTV and true to create folders (unless you want to manually specify) for shows it hasn't seen yet.
Maybe I'll create a thread about this program later once I get more time with it.