The file could have corrupted in the upload. I would verify that the mpg will play on another machine and re-upload it.
Also, if it helps, I use TMPGEnc 4.0 XPress for encoding and normally use the following settings...
Resolution: 1792x1120 or 1600x1000
MPEG-2 with MP@HL and 1:1 pixel
No Audio
FPS set to the same rate as the original AVI
VBR - Average Bitrate
Set the Max bitrate to 19000Kb/s and minimum to 2000
Bitrate and frame rate are the 2 things that affect CPU usage the most.
Try to use the lowest bitrate you can and keep a high video quality. 18000k and lower will use less CPU but hurts quality a little.
I use Adobe After Effects to adjust frame rate over the encoder since it has a great frame blending mode. On slow or low movement videos use 25fps, on faster with alot of action use 30fps.
Note: credit goes to The Master Baron for some of these settings, which I tweaked to my suit my taste.