Yes this can be done, and it can be done quite well.
I'll explain the steps to you very briefly (as it seems you already understond the most important stuff).
- Rip your DVD to your harddrive. I'd advice to use DVD Decrypter (use the stream processing mode) and only rip the main movie.
- Rename the ripped .vob files to .mpeg
- Fire up TMPEGEnc and go to file->mpeg tools; use the simple demux to extract seperately the audio and the video from the mpeg files and the join fuctionality to make one big file out of it.
- Encode the .m2v with any video encoder you want, and use AC3Machine for the .m2a audio files.
- Give the converted autio file a .wav header with mp3wav
- Merge the files with VirtualDub
Well there you go. If you got any more questions, please ask!!