The functionality of .ISO in Fab freeware has been recently altered by Fengtao. I have no way to check this since I own the retail app Platinum and no longer have access to the freeware app, but I hear it no longer outputs to .ISO.
Personally, I would do as beef does and output to VIDEO_TS and AUDIO_TS Folders.
Why bother with .ISO? Do you have some particular need for an .ISO file?