DIKO and AC3

I have a AVI of a movie which is mpeg4 with AC3audio, i have tried to run the AVI through DIKO to make it ready for DVD but i get back undersize files and nothing in the VIDEO_TS folder.

Questions:

Does DIKO have an issue with AC3, should i save the audio stream as a WAV file and remux or use something like LAMEMP3 and remux?

PEACE

As you have two questions I would try to answer with two answers.
Probably (I am not sure) DIKO has a problem to author with ac3 sound. And no, you should use the ac3 sound for your DVD - it is simply better.
The procedure is overall very easy in fact. You look what DVD can have and you analyse your source. Then you convert the parts which are different than DVD in the source. First you demultiplex the components - video and audio in order to have sound only file and a silent video. Then you use bitrate calculator to get the bitrate you need to fill the DVD. Then you load the video in an encoder, set your bitrate and resolution to DVD compliance and encode. Then you encode the audio, but onlyy if it is not in agreement with DVD requirements. Then you load both video and audio in an authoring program which should multiplex them in a DVD structure. Then burn this structure to a disc.