I've been playing with this conversion amongst others and if you want the manual route this is what I would suggest:
MKVtoolnix to demux the video and audio streams (subs if required)
dgavcdec109 to index the H264/AVC video and create .dga project
eac3to (with NeroAACDec) to convert AAC audio to 6-ch AC3 640kbps
AviSynth to frameserve the dga project to HC
HC Encoder to run 2-pass variable bit-rate encoding of dga project
GUI for DVD Author to mux the video and audio and optional subs and author the DVD.
All the tools mentioned are free and can be found at Videohelp.
Sample Avisynth script:
AddBorders(0, 85, 0, 85, $000000)
I've never had any problems with audio sync using this method, unless the source audio was out of sync to start with.