Hi.
Let's see; I have a bit of explaining to do:
1. Even though the default length of 4.35gb dvd blanks is 120min, with the right software, you can actually fit up to 6 hours on each disk. So far, you've burned "SP" (Standard Play) mode, but there's "LP" (Long Play, 4 hours) and "SLP" (Super Long Play, 6 hours). One app I know for sure that can do this is "Nero Vision", which is part of Nero Burning Rom Suite 6-7 (dvd burning was not available to Nero until vers 6). Wherever you're downloading movies, Nero Burning Rom can also be downloaded.
2. Don't worry about DVDShrink; Nero Vision can do all of the encoding/compression and besides, DVDShrink doesn't *touch* neither avi's, mpeg or divx anyway. It can only do physical dvds, loose dvd files on a hardrive or .iso disk images.
3. I wrote a tutorial (as "corypolo") describing a simple process to burn avi files to dvd with Nero Vision here: http://forums.torrentportal.com/ftopic7565.html . Therefore...
4. You won't have to split a single movie to 2 or more disks anymore; in fact, you could actually do the reverse and put a few movies on *one* disk if you really felt like it (and the total length doesn't exceed 360 mins). And...
5. No.. no conversion should be necessary: Nero Vision accepts over 2 dozen different formats. But finally...
6. If you really want to stick with your existing application, well, since it seems to be working only in SP mode (from what I gather from their site), you may consider chopping off less crucial opening/closing credits where applicable. That way, if certain videos are just a hair or so above the 120min mark, they may work to one disk after all.
Apparently (for movie dvd maker), file size is less an issue than *video length*, so a "compression" would just degrade video quality without the benefit of making a movie too long "smaller" for the application you're using.