This may be a little late, but I've had the same problem while trying to convert some avi's. I could figure out how to do it, but I eventually got it. When you get your template loaded, click settings. Under the video tab, the bitrate part also has a settings button. Do this on both. Click it and hit ok. These areas are blocked out where you can't change them, so you do not change anything. Tmpeg for some strange reason will then let you encode. Weird as hell, but it works. I put all of my seinfelds on standard vcd's using it!! Hopefully someone else with this problem will be helped, because this is a few months to late.
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