It is a known problem that sometimes the VIDEO_TS folder created by DVD Fab is not seen as a correct video folder by DVD Shrink. This has something to do with compression and not copy protection. I have also encountered this. What I did was this: I copied the ripped video to an RW disk. Interestingly, DVD Shrink could "see" this already. It is a lengthy process, I know, but I guess you need this to merge 1-2 season disks into one.
Also, one of the recent updates claimed to deal with Shrink compatibility, so maybe if you use an older version first try to update.