Have you made sure your system has the installed codecs necessary to actually playback the soundtrack? (i.e. MP3). If not, TMPGEnc will also be unable to open the audio portion of the AVI file. I must admit, it would be VERY unlikely that you didn't already have MP3 codecs installed, but it is very strange for TMPGEnc not to open a file if you can play it back in Media Player.
CDrZeus.