X5 Ultimate makes Ugly blocking artifacts

[MaxVal]

I have been building a Video library in my HTPC of edited songs pulled from DVD's.
I had occasionally seen blocking artifacts that were objectionable in the video, but recently they have become worse.
I use Make MKV to rip a DVD to a .mkv, but Videostudio 5 won't import an .mkv to the timeline. I then use Xmedia Recode to re-homogenize the file to an .mp4 (h264).
On importing the mp4 to the project and playing it in the preview window I can see the blocking that will be output in any format I render it to. In other words, it appears that the codec Mediastudio uses does not like the Xmedia Recode files.
The artifacts appear as splotches of usually dark areas that once occur, stay until the video in that area changes appreciably.
If I view the Xmedia Recode files with Windows media player they look good. No splotches.
This is occurring on two totally different machines, one XP, the other Win 7.
Any Ideas?
MAX

[lata]

Hi

A DVD uses Vob files as the video files, these are infact Mpeg2 types.

Converting Vob/Mpeg2 to MKV then converting to MP4 is not gonna do quality any favours.

If the DVD is not copywrite protected then you should be able to use Video Studio to import the files to the timeline.
Right click the timeline and choose Import Digital Media – browse for the disc.