I have some interesting news to report:
Using the "early" version of movie factory, I have found that the .m2ts stream that it creates when generating the Blu-Ray folders will play PERFECTLY with full 5.1 audio, no audio dropouts and a working status bar by simply placing the file on a memory stick and placing it in a folder named "VIDEO". Unfortunately, I am having trouble getting the movie factory to output files of any "substantial" size. It will start creating the folders (or the .ISO, whichever I choose), and then it will stop after encoding the first 20-30 seconds of video and it reports either:
Failed to create VOB folder (if selecting to "create Blu-Ray folders)
Failed to create disc image (if selecting to "create disc image (ISO))
Now, here is the real kicker. If I open the blu-ray folders that WERE created, and look in the "stream" folder, the first 20-30 seconds of the video are encoded as an .m2ts stream. If I take this clip, which ranges from 20-30 megs in size, and write it to a usb memory stick (and put it in a folder titled "VIDEO") it plays on the PS3 PERFECTLY. The audio is retained as DD 5.1, there are NO audio dropouts and the status bar IS present.
I then tried the following experiments:
1) Renamed a compliant .mpg video file as m2ts file and tried to play it in the same manner -no luck. I THINK the error was that it claimed that "The video can not be played".
2) Renamed a transport stream file with the .m2ts extension and tried to play it in the same manner and again, an error. I THINK it said "the data is corrupt".
So, based upon the SMALL video file that was output from Movie Factory, it would appear that the Best/Easiest way to get what we are trying to achieve is to have movie factory convert the Mpeg files to a compliant .m2ts file (which is located in the "stream" directory of the created folders) and burn this file to a disc under a folder simply titled "VIDEO". No BD compliant authoring required! Unfortunately, I can not test this, as my Movie Facotry crashes with an error after encoding the first 20-30 seconds of the video file. If anyone knows of an "alternate" piece of software that will convert a compliant .mpg file into a .m2ts file, then that SHOULD be all that we need to accomplish our goals (proper playback with FULL 5.1 audio support and no "issues"). Of course, there would be no "menus" or whatever, but I would GLADLY settle for what was playing from my memory stick this morning (only on Blu-Ray media).
This problem that I am experiencing happened on TWO DIFFERENT computers. I fully removed my existing "newer" versions of movie factory prior to installing the initial 5.0 release, and the error stops the creation of the files on BOTH computers...