Sounds like you are having a Codec issue with WMP. Try one of these.
XP Codec Pack 1.3.0,
_Vista Codec Package v4.4.7 Beta 4a (freeware),
MS WMP codecs,
IMO Microsoft does not do a very good job performing the tasks you are trying. I would suggest a standalone program that is better suited for converting and burning DVD's. Probably Nero or something along those lines. I use AVS Media which works great. Also these type of programs are usually not Free but they get the job done. They may offer a Free Trial version so you can try it before you buy it. Hope this helps.
Note: I don't use WMP so I can't offer any advise on the 3 Codec Pacs above. Only use ONE as problems may occure with Multi Codec Pacs.