Yes most people convert the files down to avi or mpeg 1 or 2. In fact they generally downsize it so it can easily be burnt to cd as a VCD or SVCD so about 650 to 700 MB in size for a movie. Some may split it into 2 or 3 parts. For series they will be shorter than movies.
To share, create a folder & put your files inside. Then go to LW's menu Tools>Options>Sharing & press add & direct it to where your folder of files in & select it. Then press apply button.
The other way is to go to LW's Library window & then menu File>Add folder to share.