Secret Number 1: VirtualDub (or VirtualDub-MPEG) - the best freeware video conversion / splitting software I've found.
What you want to do is compress your video but leave the audio RAW / WAV. Most cameras are going to record in raw MPEG-2, so use VirtualDub-MPEG as VDub itself doesn't like MPEG-2 streams.
Once you load the video into VirtualDub-MPEG, you go to the Video menu, select compression, and select XVid as your video codec. Don't touch the audio. Set your start and stop points in the video, and then "Save as AVI..." from the file menu (you might want to first locate or move the "Output" folder so you know where to find the split clips.)
If the file is still too big, then delete the new .avi and go back to the compression options, there is a slider (under "advanced..." I think) for Quality / File Size. Slide it towards the smaller file size end a bit, try it again, keep adjusting that slider till you have the file size you want. It will look worse the farther to the right you go.
This allows you to compress the video while leaving the audio alone.
This all assumes your video camera captured the audio well to begin with, if the source video sounds like crap, there is nothing any program will do to improve it (that I know of.)
(Going to post this as its own thread as well.)