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When you click the Format Options button in the Output Module Settings dialog box, you should see an MPGE2 Export Settings dialog box. In that dialog box there is a Notes field that gives you instructions. It should say "Set frame size to 720 x 480 pixels in the Stretch options in Output Module before encoding". (The numbers may be different for different output types, but I'll stick with the NTSC DV numbers here.)
Did you follow that instruction?
If you don't and your composition frame size is not 720x480, then you'll get the error message that you describe. I was able to reproduce this just now.
If you follow the instruction, then you should have no problem. I was able to reproduce this just now.
Basically, what's happening is that the output module is rendering and sizing a frame and passing it to the encoder. If the output module passes a frame that is the wrong size to the encoder, then you see the error message.
You'll not see this message if your composition frame size is 720x480 because the frame is already the right size for this export type. This is one of the reasons that it's easiest to work at the pixel dimensions of your final output.
Also make sure to check your audio settings. By default, audio is enabled in the MPEG exporters, but your default output module setting may not have any audio. These settings need to match as well. If you use audio, make sure it complies to the MPEG-II DVD specs in terms of sample rates and channels.