The file size estimate in AME is not known for its accuracy, and also may be factoring in the .wav audio file size, when in fact Encore is typically squeezing that down a LOT by using transcoding to Dolby so that changes the final size on DVD. PCM audio is 1536k, versus just 192k for Dolby. Allocate more bandwidth to your video and you will be happy ;-)
Also, if you have CS6 or newer, change "Scale to Fit" to "Scale to Fill" in the Output Source Scaling and you'll eliminate the black side bars.
One more tip - avoid using the "Automatic" or "Same as Source" encoding. Choose the "PAL DV Wide Progressive" preset for MPEG-2 DVD instead. The more you can be in control, the better the results typically.
Jeff