You are correct, for DVD output the only options for the audio are LPCM/WAV or MPEG
In your original post, did you mean to say that it is not AC3 enabled?
Before edit:
General
ID/String : 16516 (0x4084)
CompleteName : 2698.TS
Format : BDAV
Format/Info : Blu-ray Video
FileSize/String : 948 MiB
Duration/String : 26mn 16s...
Now this really is good news:
Full changelog: http://www.videoredo.com/en/ReleaseNotesTVSH264DetailedChangelog.htm
Of special interest for HD TS files:
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