You need to use an MPEG2 encoder such as TMPGEnc or CCE, this will most likely require an increase in size.
What DVD Lab should say is that DVD was designed to primarily use MPEG2 files, but that it supports MPEG1 partially, but it can't preview them. It should then also tell you that the audio needs resampling from 44.1KHz to 48KHz.
You may want to resample and convert the audio to AC3 seperatly though. If you went from 224k mp2 to 192k AC3 you could actually save a little bit of space.