Hi
MicroBell is right, converting or editing video files can take a LONG time.
Some factors to be aware of are:
The CPU (faster the better, obviously).
Memory, the more you have and the faster it runs the better (128 mb SDRAM is not really sufficient) one hell off a lot of data is going to be processed, and if the data has to be stored in your virtual memory (as opposed to physical memory) it will slow you down even more as you will be constantly writing/reading to the HD.
Your HD. Although the file you are working on is 35mb it will become MUCH larger than this when being worked on.
Also the file may be fragmented across the HD whilst being worked on causing even more slow down.
Combine this with the point above (about memory/virtual memory) you can see that you are basically tieing you HD up in knots as it is trying to do to many things at once. Which is why it can take so long.
Ensure your HD is defragged before doing video work.
You could try using something like ASFTools to convert the file to an avi and then once in avi format use VirtualDub to compress further, but you may well need a crash course in video editing (and is it really worth it on such a small file).
http://www.geocities.com/myasftools/faq.html#General Questions
HTH