The error message you are seeing is not produced by Digital Media Converter. It is probably coming from a third-party MPEG decoder installed on your computer.
To fix this problem, click on the Tools menu and choose Settings. Switch to the Compatibility tab and uncheck all MPEG decoders. (The free MPEG 2 decoder you downloaded from our web site cannot be disabled and will still work.) Try the conversion again and the problem should be eliminated.