Hi carrachu.
Don't give up. To make KVCD is not a easy way, but results ar great

I found this site less than month ago, and naow I'm makin full playable, great quality KVCD MPEG files, so I gues it is not as hard as it looks.
Firs of all to decompres MPEG4 file like DivX or XVID you need proper DivX or XVID decompresor (they both equivalent, but i sugest XVID decompresof for both formats). FFdshow is not a decompresor, it's only a filter and you can't use it in KVCD proces or for VD. And B2H is right. Instaling codecs pack is not a great idea, so if you have one deinstal it, and install separate only needed codecs.
I've started with
DVD/DivX to KDVD/K(S)VCD using CCE/TMPGEnc - By vmesquita guide, with some problems, but asking people on this forum i found some another solution.
First try this guide step by stem, and then if you find some problems just write them here. We will find best solution for you.
Also try a
acp: Automated program to make KVCDs, including prediction. I have not use this, but you can give it a try.
PS: I'm no moderator

I wish I bee so much in this forum , but I'm not