For Mp3 files I would recommend the latest encoder (check for updates in MC) and this custom setting:
-V 4 --vbr-new ~154 kbps
or if you must have a lower bitrate:
-V 5 --vbr-new ~134 kbps
-V 6 --vbr-new ~121 kbps
The bitrate estimates are from my test here:
http://www.hydrogenaudio.org/forums/index.php?s=08b46279a25d8b11e76aef72959130ba&showtopic=37011&st=50&p=328558&#entry328558.
Classical music averages often a bit lower, but that depends greatly on the source material. Genres like heavy metal, electronic, techno etc. produce usually higher bitrates.
One hour of music at
154 kbps needs 69,300,000 bytes = about 66.1 MB of HD space
134 kbps needs 60,300,000 bytes = about 57.5 MB of HD space
121 kbps needs 54,450,000 bytes = about 51.9 MB of HD space
When you are starting from an already lossy file the result will be worse than encoding directly from a lossless source at the same setting. That is why I would not recommend using any lower settings than these when transcoding MP3 files to lower bitrate MP3 files. Also, I would transcode only files that are over 192 kbps.
If you absolutely must make them smaller you could try ABR instead. It is VBR too, but the bitrate is restricted to a certain average value and thus more predictable. For example:
--preset 115 would make about 115 kbps files. One hour of music at 115 kbps needs 51,750,000 bytes = about 49.4 MB of HD space.
Actually, I think iTunes AAC might be a better format for transcoding at 128 kbps or lower. If your original files are in MP3 format you could try iTunes for making AAC files. The newest iTunes has also a VBR mode for AAC and that would probably be the best AAC option. After the files are converted you can use MC for handling the iPod.