I am surprised that no one has replied yet, but you are doing wt least two things the hard way.
Yes the message is correct because the audio in a DVD is AC3, so DVDA needs to re-encode it.
First, using DVDA to encode the MPEG is a compromise of everything. Encode the video and audio separately in Vegas. It’s in the “Render As” menu, though you are encoding, not rendering. Use the DVD Architect MPEG2 template for the video and the AC3 template for the audio. (Yes, you have to encode twice, but the audio is pretty quick). Drag the MPEG file into Architect and it will find the AC3 file.
Steve Mann
MannMade Digital Video
http://www.mmdv.com