This is way old, but I have a solution: AVISynth.
TMPGEnc can open up AVISynth (.avs) files, even though it claims it doesn't support them. You can generate .avs files for the XviD AVIs you can't open with TMPGEnc with VirtualDub: simply go to the "open file" dialogue and under "Template" select "AVISource". It will create a file called "<AVI filename>--avisource.avs"; open that in TMPGEnc and it should work.
This also works for converting Anime and the like which has "glitched" frames when converting, but not when played back.
P.S. Also, google DIKO. It's a freeware DVD converter which works very well, and basically automates what I told you to do.