Is it possible to have a DVD with a 16:9 timeline and a 4:3 timeline in encore and have them play correctly?
No problem at all.
The DVD Specifications say that all titles in a VTS must have the same aspect ratio & the same audio streams but there is nothing stopping you mixing this up in different VTS.
As Encore is an abstraction layer tool, and handles all this stuff for you, it will not be a problem & it should just sort it all out for you.
The one thing you cannot do is mix TV standards, so a disc must be either all PAL or all NTSC.
Apart from that, it should just work. Encore automatically places every timeline into a new VTS.