Likely that is not a legal combination.
It is a valid combination as I have one sent to me with the extention of .mpg and it plays back very well. I was able to verify it with G-Spot and another video file analyzer application. I think it is not the norm though. If Premiere can't do it I wonder what application could do this? (possibly a third party plug-in or stand alone interface)
Why not use AC3? More efficient and better video quality with better bitrates.
I have Premiere Pro CS3 with a Matrox RT.X2 LE I/O card.
Now THAT is the way everyone should start their questions. You let us know which version of Premiere you're using, and which third party add-ins you have. Brilliant!
To address the question, I don't know that Premiere is capable of creating Transport Streams at all. Can you get the proper .ts or .m2v extention?
Having said that, it does appear that Premiere's audio options are limited to either PCM, Dolby Digital or AAC (which is the norm for H.264).