I dunno if the same sort of thing is already in the tutorials section. Perhaps it is , but i think this is about the easiest way to process XVid's into VideoCD formats.

Grabbed from vcdhelp.com

Open TMPGEnc and press Cancel if Wizard pops up
Go to Option->Environmental Setting...->VFAPI plug-in
Adjust the plug-in priorities (this is done by right clicking on
the plug-in and choosing Higher priority as many times as
necessary) to match the following:

DirectShow Multimedia File Reader.......3
AVI2(OpenDML) File Reader................1
AVI VFW compatibility Reader.............0
CyberLink MPEG-2 Decoder.................0
Microsoft MPEG-1 Decoder.................0
Wave File Reader..............................0
BMP/PPM/TGA/JPG File Reader...........-2
DVD2AVI Project File Reader 1.76+.....-2*
TMPGEnc Project File Reader 2.58......-2*

Press OK
Now you can load your XviD AVI into TMPGEnc just like any other AVI and encode as you wish.

* These plug-ins might not appear in your TMPGEnc, but it is not a problem since they do not play any role in encoding XviD AVIs to Mpeg1/2

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Tested it on a P3 and it seems to work flawlessly
The sound doesn't sound too excellent though .