adobe premiere or adobe after effects are both good programs to use for your fading scense, i recommend after effects personally since it works a lot like photoshop a premiere is geared more toward video aquisition and creation than video post like your talking about. As for you video size, its all a matter of what codec you are using and what resolution you are rendering at. I recommend rendering your video to full size, then using after effects to reduce the resolution to tv or dvd res (320x320 for tv, 500+ for dvd, i forget the actual res) and encode it in the mpeg 4 (divx) format to get the smallest size.