xmedia 3.1.1.0
I haven't bothered to update to 3.1.1.4 since they release an update every frigging 2 weeks.
elaboration:
Download and install minicoder as a back up (previously it was my main re-encoder)
Minicoder always renders the subtitles correctly, as long as you correctly tell it to

The "over expectation settings" are simple, I usually use the following, depending on the source and resolution etc. of course:

CRF is set to 17 - 19 depending on what I am recoding
If you want it for use on a DVD, make sure you set the resolution right though. 704x400 should work, but if you have a larger screen, you may want to adjust that figure, depending on total size. I find 704x400 sufficient on a 32' LCD for DVD quality material
This ensures (most of the time) a
decent hardsub to start with.
Next is to re-encode again with whatever program you usually use to make the file AVI and use your normal settings, of course, ignoring the need for subtitles as they are now burnt into the video.
You can try using minicoder to go directly to AVI, but it usually returns a rather large 800mb average for 1 1/2 hour movie (depends on bitrate and other settings)
Freemake video converter is a decent program that can make decent avi at approx 600mb, but it is vbr only, cbr is not available.