Ok, I just tried it again. This time when I loaded it up into VCDeasy, it said that the "file requires autopadding. You may not be able to watch it correctly." Then when I converted the mpg file to a bin/cue it said in the log that the mpeg string will be edited on the fly and that autopadding requires to insert additional 81648528 zero bytes into MPEG stream (due to 295828 unaligned packets of 295829 total).
The file is a 4:3 divx I'm converting from and here are the settings I used in TMPGEnc:
From front page:
Video-CD NTSC(MPEG-1 352x240 29.97fps...)
From Advanced tab in setting:
Video Source type: Non-interlace (progressive) *Maybe this is the problem
Source Aspect Ratio: 1:1 (VGA)
Video arrange method: Full screen (keep aspect ratio)