Oh, I think I see the problem. When I hit the encoding button, the command line pops up, and then (my personal favorite windows glitch)
THE APPLICATION OR DLL C:\WINDOWS\System32\AVIFIL32.DLL is not a valid windows image! Please check this against your installation diskette.
And now, once again, there is a bump in the road to get MPEG videos working on my iPod nano. Can anyone help?