TMPG cannot work with ac3 files as an input.
No, your target should be mp2, but the audio encoding engine of TMPG is not good.

i just tried to convert the file to wav, so i'll give that a go...

Yes, OK. But it is much better to reencode directly the ac3 file to mp2 in headac3he or BeSweet (I personally prefer the last).

Correction : it works with no problem (not even a warning) but... the output has no audio !