You need conversion software for the MPEGs, my DVD burner came with software that lets you do this.
Internet Connection Sharing is definitely possible, but I would recommend a router/gateway - they are fairly cheap now and offer additional firewall protection.
I would recommend a wireless router. You can get a router and a card for less than $100. I have a desktop on Win98, a laptop on NT and another laptop on Win2000. Never a problem. And I can sit out on my lanai while I work.
MPEG-2 encoded video files are usually valid input for DVD-burning software. Just burning the files on a DVD won't have the desired effect, you need to select a "DVD Video" option in the burning software and then import the files (sometimes an extra authoring tool is bundled for Video DVDs).
2. If one of the PCs has two NICs it is possible to use it as a Bridge. Windows has a Wizard to help you setting it up. A more elegant solution would be a Router, especially if you invest extra money for one with a decent firewall (with Cable a firewall is a must).
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