You need to bring each video into a new project and add then to the timeline, add DVD markers and then the menu. You can use the first frame for each menu button. By the way... it is better to export these sub-movies from Premiere Elements as DV-AVI rather than MPEG2... File>Export>Movie. This will maintain quality when you final burn to DVD and will eliminate any transcoding/burn issues that you might see using MPEG2 Files.
Regarding your burning issue try working through this FAQ. Also if I recall Steve (forum Moderator) had a FAQ which had a link to a registry fix for burn issues. Maybe he will be along later.
If you want a better DVD authoring tool with more features and flexibility you could look at Sony DVD Architect Studio (note the Studio version not the Pro)... a lot of folks use it and it costs less than $50.
Sorry. I don't have any registry fixes for DVD burner problems. They're usually an iffy solution anyway.
The fact is that more powerful DVD burning programs on your computer -- Nero, Recordnow, etc. -- often monopolize your drive so that other programs can't get to it.
The best solution is to burn your Premiere Elements DVD project to a folder on your hard drive, and then use your DVD burner software to burn the VIDEO_TS folder to a disc, as described in the FAQ that Paul linked you to above.
PE will not burn to dvd anymore. Something is wrong with the registry that I have not been able to figure out
To follow up on Steve's comment: do you have Nero, or Roxio installed on this computer? Do you have Quicken, and if so do you do backups to CD?
These have all been known to cause issues with all Adobe programs, that Burn to DVD.
For a Burning program, once you have done the Burn to Folder, I recommend the freeware application ImgBurn. It is a very powerful little program, with a lot of very useful features. It also has some of the funniest "error messages," that I have seen.