I have installed mmc 8.7 on my 128pro aiw enabled system
and the tv works fine with sound but the file player gives a message something like "cannot load file". this happens with any type of video file. I can live with that but when I capture using the suggestions in your ATI capture guide, I always end up with a mpeg (mpg) file even if I specify an mpeg-2 preset in the setup.

MPEG-2 is an MPEG file. It will have the extension of ".MPG". The file player, are you meaning the ATI MMC FILE PLAYER? Or Windows Media Player?

I thought mpeg-2 had an extension of mp2. If not then how can you tell whether a file with mpg extension is mpeg or mpeg-2? The file player I am refering to is the ati file player that comes with mmc.

The following file extension are associated with MPEG files:
DAT = MPEG1 with VCD navigation data
M1V = MPEG1 video
M2V = MPEG2 video
MP2 = MPEG Layer II audio. If it contains video, it is misnamed (ATI MMC did this in the old days)
MP3 = MPEG Layer III audio, not muxed with MPEG video
MP4 = MPEG-4 video file (should be in an AVI), misnamed
MPA = MPEG Layer II audio
MPV = MPEG1 or MPEG2 video
MPG = .3 extension version of MPEG, from DOS/Win16 era, still used Win32/NT
MPEG = MPEG video, audio or muxed video-audio file
VOB = MPEG1/2 with DVD navigation data

MPG extension can be used for either MPEG-1 or MPEG-2. The MPEG decoders will sort out the differences.

I've honestly never been fond of the File Player that comes with ATI MMC. It's not very good, and is known to be buggy. I prefer playing my MPEG files in PowerDVD if I want to watch them. Or I will watch them as raw interlaced (meaning I can see the interlace lines) in the editor Womble MPEG-VCR. And then there is always Microsoft Windows Media Player that comes with Windows.

If the ATI MMC File Player will not see your file, it may be an issue with not knowing the correct file extension, be sure it's ".MPG" first.

Let me know if any of this helps, and what ultimately works out for you.