Yeah I understand what you are saying.
The problem (if you want to call it that) lies in the DVD spec. In other words you can’t jump from the last chapter on timeline 1 to the first chapter of timeline 2.
Now here is where it gets frustrating or weird depending on your view. SOME DVD players WILL go from the last chapter of timeline 1 to the first chapter of timeline 2. My ancient (circa 1999) Pioneer 414 does this, which how I discovered the same issue you are describing.
But the Encore preview section is preforming according to the DVD spec.
A workaround that has been described is to place another chapter point one-second from the end of each timeline. So when you hit that last chapter point, you get a brief shot of timeline 1, but essentially you are starting just before timeline 2.
So you HAVE done everything correct, but add in the workaround and you will be fine.
If anyone else has a better workaround please post it.
Good luck.
Martin
http://www.mctimages.com