You can use Compressor to encode the DVD files before dropping them in Toast, but if you don't encode them small enough to fit on your disc, then Toast will re-encode them and it will look terrible.
Use this spreadsheet calculator from Ken Stone to help you calculate it. If you're doing a bunch of videos, you can temporarily drop them all in a timeline to get the total run time.
FYI, You need to make sure your AC3 and M2V have the same name and toast will automatically add the sound to the video when you just drop the M2Vs into it. Use a file renaming utility or if you set up a destination folder it will default the file names to only "source".