The best encoder is CCE. The second best is TMPGenc. There's a few others but i doubt anyone will tell you otherwise.
CCE isn't as newbie friendly, but if you get yourself a good guide (
http://www.doom9.org) its rather simple anyway.
Then use a program called DVDlab for menus. I hate hardcoded but i guess its slightly simplar to do (there's guides for various subtitle muxing @
http://www.dvdrhelp.com )
I personally hate AVI->DVD encoding, i assume that's what your doing, i just think its a bad idea, and its well worth investing in a decent player or an xbox so you can play avi files without faffing around spending hours re-encoding, reauthoring and what have you, only to have a DVD that looks worse than the original avi.
It really is the best idea to get an xbox and mod it (softmodding is all done with software):
http://forum.dead-donkey.com/viewtopic.php?t=7034