DVD authoring programs need to work with elementary streams i.e. separate video and audio. If you give an authoring program a straight MPEG-2 file it has to start by demultiplexing it - tearing it apart into those elementary streams. MS is giving you the choice of producing those elementary streams yourself. This has a couple of advantages that I can think of (there are probably more!) - you've got more control over how each stream is produced and you'll use less disk space (audio file + video file rather than audio file + video file + original mpeg file).

Ian G.