Encode error while transcoding in CS5

Question

I keep getting a Encode error while attempting to transcode in CS5. I have a 720p  59.94 fps  mpeg 2 file in which i am building a dvd project and outputting to a 8.5 gig folder. I am running W7, i have set all adobe programs to "run as administrator". Before building, i run the check project function and all is ok.
I can transcode in Adobe Media Encoder just fine, but i prefer to transcode within Encore while building my project.
I demux the files before importing into Encore. I was able to transcode successfully this file while building a project with no menus. But, i imported a seperate file with the same properties, and attempted to transcode and build another project with no menus and i get the "Encode" error.
Not sure what else i can do. In my particular case, i get better results when i transcode within Encore rather than using Adobe Media Encoder.
Any help would be appreciated.
thanks

Answer 1

The error i get is "Encode error". It always happens
when transcoding begins. I tried transcoding before the build and i get the same error.
I am not using premiere so Dynamic link is not applicable in this case.
My file path name is short, but has a few spaces between the letters.
I have to import the assets as a seperate video and audio file. That is what i meant by demuxing. This is why i prefer to transcode within Encore because it will keep my 5.1 channel sound. If i transcode within Adobe Media Encoder, it is converted to 2 channel .