If your video is full screen, then you can probably rely upon Ulead Video Studio 7.
Otherwise you'll want to grab VSO Divx to DVD
This should take care of all your problems, though I don't understand how to get it to actually include external subs, for which reason I typically use:
Combined with other various video tools so that I can create my DVD menus, add musick, custom back drops, etc.
Now if you want to know how to merge a SRT into an AVI, then check this guide out:
http://www.videohelp.com/forum/viewtopi ... ge#1351050
It also contains a link to convert about ANY format into MPEG.
Also a point of note, if you intendo to convert a MP4, then forget about it, it seems near impossible to me thus far, though DivxtoDVD doesn't seem to mind the format, which is nice, but you get generic menus. Oh well.
Lastly, you can also convert Real Media if you are lucky, but that's another story.