Ok just to update,
I have completely given up on MEncoder. I was getting more problems in fast moving scenes where weird artifacts would show for a second.
Anyway I installed the K-Lite codec pack and AVISynth and I am now using the MEncoder / AVISynth option for transcoding. Everything seems fine with this (I can use goto and fast moving scenes are on longer an issue). The only problem is that I need to pause the video on start up for a couple of minutes to let the transcoding buffer fill, but I can live with that as once I let it fill up once it is fine for the remainder of the film.
Thanks for your suggestions and help for the previous issues.