It all depends on what you want and how much disk space you're willing to use on them.
An ISO(whether it's from a DVD or a BluRay) is the best quality you can get(with a few exceptions, but I'm omitting them to keep things simple).
Their downside is that they take the most space of all the video formats.
Mkv/mp4 are usually encoded with a good codec so they usually have decent quality and a medium filesize.
Avi/rm/flv are usually of very low quality, but they don't use up a lot of disk space.
Wmv vary from very good to terrible quality, usually take a lot of space and is the least well supported by video players so they're often not very attractive to get.
For all those different formats, the person who rip them can do an absolutely horrible job, a really good one or anywhere between the two. But in most cases, what I said above should be true.
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A few other tips:
Usually, the higher the resolution is, the better quality the video will be, regardless of the format it's in.
The most common for rips are ~400p, 480p(like the original DVD), 720p and 1080p(like the original BluRay)
Some posters will make rips of high quality and others will do some of poor quality so remember who has good quality posts and always download from them if possible.
With JAV, it's pretty much always of low to decent quality, but for idols, there's a lot of high quality posters(look for the 60fps rips).
You would be better off using a video player that supports direcshow(which means not VLC) when you watch ISO's(or any other videos) since they offer higher quality deinterlacing and more control over the quality.
LAVfilters offers yadiff deinterlacing which is pretty good and you can even deinterlace at 60fps which means better video fluidity.
It might be a bit more complicated to set those up, but there are a lot of tutorials about it(a google search for "MadVR + Lav Filters" will bring up a lot of them).
If the tutorials are still too complicated, I think the CCCP codec pack has some pretty good settings out of the box so it's worth a try.
I hope I made things simple enough.
To answer your questions a bit more directly:
It's most likely the rippers fault if the quality is bad(sometimes the studio that made the DVD hasn't done a very good job as well). The only thing you can try to make it better is a better deinterlacer, but that may or may not help.
There's not much you can do(other than maybe better deinterlacing) to make it better so leave it as is or try to find a better version.
Only turn it into a mp4 or something if you think it takes too much space.