1. Go to Settings > General Settings > File View > Show Files and select All
You will now see the file in the folder you made.
2. If you have set up WinFF properly (i.e., followed step 2 of the instructions to replace the presets.xml file) you should not have to select mpeg2
So fix your WinFF installation, convert another video then let us know the result.
...my mpeg does [play] but it is crazy pixelated.
As you said you can't play it on your device, I presume you mean this is on your PC.
I suspect that re-encoding (generally crappy) YouTube videos twice
may have some bearing on this situation...