I was able to conduct a couple of tests last night per your request. The test included the use of a known good VIDEO_TS (VIDEO_TS.IFO) file folder in each test case.
The first test used the known good VIDEO_TS file folder to convert to AVI and this test was successful e.g. file was converted, both video and audio components, and preview was functional during the conversion process. AVI standard preset selected was (Video: MPEG4 (DivX, XviD), 1500kbps; Audio: MP3, 192kbps).
The second test used the same known good VIDEO_TS file folder to convert to MP4 and this test was also successful e.g. file was converted, both video and audio components, and preview was functional during the conversion process. MP4 standard preset selected was (Epson P3000/P4500/P5000 – Best Quality – (MPEG4, 720 x 480). So it seems Vista likes MPEG4.
Both converted file types played on WMP.
The third test case is essentially the conversion setup that I use on my XP machine that I am unable to establish on the Vista machine and the subject of my correspondences to you. This test used the same known good VIDEO_TS file folder to convert to MPEG and this test failed, e.g. preview was functioning however, only the audio sound track was converted, no video. The resultant .mpg file size in this case was 256MB. I avoided my custom preset which btw only alters the audio bitrate to 256kbps and chose the standard AVS MPEG2 preset for this test (Video: MPEG2, 4000kbps, Original size, 29.97 fps; Audio: 224kbps).
So, I am right back to the original anomaly prior to downloading the codec pack and all I have done is cycled power on the laptop, (turned it off in the evening and back on in the morning). I had at one time been able to convert to MPEG successfully without preview (after codec pack download) but that is not the case today.
I hope this information is helpful.