Encore balloons project size

Okay, so i've got 3.5 hrs of footage that came off of a JVC Everio HDD, and it's 720x480 SD.
Encore accepts the footage as "Do not Transcode" for DVD settings.
Realizing bitrate vs. quality, i've decided instead to create a BluRay with SD footage.
Unfortunately, Encore CS4.0 requires transcoding when it comes to BluRay. Although it shouldn't, i've always had Encore re-encode totally compliant Mpeg2 footage.
But this isn't my dilemna.
My issue is, even within Encore's project settings, regardless of maximum bitrate, and with Encore doing a re-encode, the output size balloons out to 50gig.
I've got 25 gig BD-R image selected.
The original SD material is only 18gig in size!!!
Any help would be appreciated. I've always had issues with Encore's Mpeg2 for BluRay compliance. But this is definately a curve ball..
I might be forced to go to h264 on this one.

Here's the rundown...
Clips that are ingested, are transcoded, as per bitrate calculator. I verified this by the size of transcode.
Transcoded clips equal roughly same size as ingested clips...This is verified by the source>transcode folder...
Since Encore uses this folder to build a BluRay folder, the output size should equal the transcode folder size (give or take a few megs)..
So what starts off as a build folder of 12 gig, ends up outputting to a folder size of 33gig...
edit:
I've since renamed my .mod files to .mpeg, and it's looking more promising.
However, my audio is lost.
Gonna reboot, and get back..

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