I'm wondering this same thing. I have a good number of .avi files which will not be processed by dvrmstoolbox. The filewatcher picks it up with no problem. I see the .mpg being created up to a certain point in the DTBTemp folder, then the creation stops.
I'm going to post this in another thread, but the log typically states something like this:
Move file specified in Context("OutputFile") to C:\Users\Public\Recorded TV\
Moving C:\Users\Public\DvrmsToolbox\DTBTemp\Kath.&.Kim.(US).S01E17.HDTV.XviD-LOLfileprocess.dvr-ms to C:\Users\Public\Recorded TV\Kath.&.Kim.(US).S01E17.HDTV.XviD-LOLfileprocess.dvr-ms
Could not find file 'C:\Users\Public\DvrmsToolbox\DTBTemp\Kath.&.Kim.(US).S01E17.HDTV.XviD-LOLfileprocess.dvr-ms'.
Action did not complete successfully
I was wondering ift perhaps a newer version of the mencoder.exe would help?