You should be able to get very watchable video at around 500MB/hour at 512 x 384 or 640 x 352 pixels. That's a tad under 1 Mbps including a stereo channel at 144 kbps (i.e. sampled at 48 kHz).
If you're prepared to reduce the size of the picture, you can save huge amounts of video data. You don't want to drop the sound quality too far because the brain thinks a bad picture with good sound is way better than a good picture with bad sound.
Any H.264-like (MPEG4/Xvid/DivX/Quicktime) format will be pretty good if you're starting from the original source, but since your stuff is already in H.263 (FLV) you may not gain much, if anything, and you may lose a lot of quality very quickly in the transcoding process. In other words, your videos are already compressed courtesy of H.263, and you may not gain much reconverting them to H.264.
You can roughly guess how well encoded a video is by zipping it: if it gets vastly smaller, then the encoder could have done a better job. If it DOES get vastly smaller, I'd simply send the zip version and let the recipient unzip it :-)