Common TMPGEnc problems:
www.dvdrhelp.com/tmpgenc#problems

If you have trouble open MPG/MPEG2/SVCD/DVD files
Install the PowerDVD 4+ demo and use TMPGEnc 2.57+ and you should be able to open MPEG2
or install the MPEG2 plugin for TMPGEnc or use this DVD2AVI method (note DVD2AVI do not convert the MPEG2 to AVI it only frameserves it to TMPGEnc)