I had this issue with Popcorn 1 and hoped the upgrade might help. It didn't. If I attempt to burn a disc with a VIDEO_TS folder located on my external firewire hard drive, Popcorn gives me a dialog box which states "The disc you have inserted is CSS encrypted and cannot be copied by Popcorn. If you are online now, click "More Info" for information about CSS encrypted discs."
However, none of the VIDEO_TS folders I've tried this with have been CSS encrypted. And here is the kicker: if I move the VERY SAME FOLDER onto my local (internal) drive, Popcorn will accept it with no complaints. I digitally throw myself at your collective virtual feet and beg for assistance, as this is really annoying. Is there anyone out there with the same problem? Or conversely, is there anyone successfully burning content from an external firewire drive?