What version of mencoder do you have installed? (just type `mencoder' on its own).

What operating system are you running, and on what kind of PC?

I've never had that problem with 770-encode (obviously, or I'd've fixed it) on my Mac, Windows machines or numerous Linux boxes - but given 770-encode is just a thin wrapper around mencoder, your problem probably lies there (definitely so, given it also happens with Media Converter).

So... we'll just have to get to the bottom of what... ;-)