I normally don’t recommend installing codecs packs…I just install them individually as I need them, but trying to help long distance it may save time if you put in either KLight or CCCP codec pack (not both!) Are you working with .mkv H264, or something else that is slightly unusual?
Working with mpeg2 files [B]does[/B] take a lot of space. You’ll need room for working files and the finished dvd. I don’t see a way around that necessity.
FAVC should not be giving you that error message. Since you have it working, I’m assuming you have both Net 2.0 and AviSynth installed as they are absolutely necessary components needed for FAVC to function.
To help, I think you’re going to have to explain in great detail exactly what you are working with, and the steps you are using with your conversion process, including the settings you are using in FAVC. Your original title says divx, and FAVC should have no problem working with mp4 or avi using divx codec.