Ok, now I'm even more confused about CBR and VBR, but I'll tackle that later.
Here is my setup and what is working and my intent:
1. 50" Pioneer Elite
2. Pioneer Elite VSX-33 (all devices connect via HDMI to the AVR, which outputs one HDMI signal to my 50" Pioneer, the AVR handles everything, DD/THX/7.1+ - I have a 7.1 B&W setup/etc and all the m4v's play perfectly through my aTV 2 in XBMC. I can select any of the audio tracks I need w/ no issue (the only issue I have is in OS X which I learned Quicktime X and 7 do not handle AC3 well although VLC does)
3. aTV 2 JB'd and running XBMC, connected using SMB via ethernet to a second "Time Capsule" set to extend my network in order to supply internet radio to my Pioneer Elite VSX-33 and allow the 2TB HDD to act as a media drive for my aTV 2)
This setup works perfectly, no issues.
I used the batch workflows but found the quality to be subpar on my 50". I spoke w/ a lot of members, and learned about custom coding for the Handbrake CLI, but the codes weren't taking so I settled for the GUI and used this in advanced settings:
ref=10:bframes=10:subq=8:mixed-refs=0:weightb=0:trellis=2:b-adapt=2:me=umh:merange=30:deblock=2,2
I spent a lot of time researching on B-Frames, Adaptive Direct Mode, Subpixel ME & Mode Decision and how they effect each other and the m4v. There is a significant difference in image quality using that code. All the m4v's play perfectly
A bit confused on your first two tracks you list.
AC3 Passthru is as good as you are going to get from the source dvd as it is the sources AC3 track passed thru to the final encode unmolested. Anything else will transcode it. That first track is AC3 Six channel discrete ? That would only apply to aac or the Handbrakes AC3 *encoder* as opposed to its AC3 Pass thru.
The only issue is audio, which has always perplexed me. I've read up on all the various codecs, AC3 Passthru being one most recommend. I only chose AC3 6-channel discrete in Handbrake GUI as it allowed a higher Hz and kbps (48 and 640 respectively) and I thought this would transcode the AC3 to a higher quality but then realized how stupid that is as you are right, it's extra work and there is no way to take a lower quality track to a higher level as, well, it's basic logic LOL (I'm blond) and as you stated:
There would be no advantage whatsover to Transcoding a sources AC3 Track back into AC3 whatsoever. So if it were me I would only use the AC3 Encoder on say a DTS track since currently and .mp4 can not contain a DTS Track.
About DTS, do I need to use the mkv container for DTS tracks? I have one DVD (Pirates of the Caribbean I believe) that has a DTS audio track listed in HB.
Yes, for iPads, etc Use the AAC encoder and Dolby Pro Logic 2. It is a 2 channel signal using phase shifting to create a 5.0 Dolby Pro Logic surround effect. For an iPad or iPhone or even an atv hooked up to a non AC3 Pass thru capable source (for instance a stereo tv via hdmi w/out a receiver) it will give you the best possible sound in those instances from the source audio.
Awesome, glad to know I FINALLY got something right. AAC is needed as a second layer for stereo devices.
I am curious why you chose to put the aac track last instead of first. The stock atv requires that the aac audio track be first and the AC3 track to be second in order to properly "auto detect" which track to play. Though it is a workaround for the fact that xbmc automatically picks the first audio track so unless you specify different for each source (like specify the second track) you would get the better track by default.
Good question. I thought the first track would be the default and as such should be the best, and the device would automatically detect the second/correct track. XBMC defaults to the first track as well which is another reason. However, I can always select the second track within XBMC, which would then allow Apple devices to properly play the necessary audio track as it would be the first track.
Video: If your looking to have the best reproduction I agree with BlackMangoTree that Constant Quality is far better than an arbitrary specifed ABR. Fwiw in general rf 19 is considered generally transparent to a dvd source visually.
Ok, this is where I have so many differing opinions my head hurts. My friend Jackee is a documentary film maker and editor (in fact she went back to Apple to help design a recent pro-app).
According to her and others VBR is better as CBR can produce quality fluctuations whereas VBR encoding is a method that ensures high audio quality bit-allocation decisions during encoding (encoder allocates an appropriate amount of data/second, depending on audio complexity). If consistent audio quality is important VBR encoding has been recommended.
The advantages of VBR are that it produces a better quality-to-space ratio compared to a CBR file of the same data. The bits available are used more flexibly to encode the sound or video data more accurately, with fewer bits used in less demanding passages and more bits used in difficult-to-encode passages. The disadvantage is that it can take more time to encode.
Then there are various methods of VBR encoding:
Multi and single pass, Fixed quality, Bitrate range, Average Bitrate (I believe this is what I selected?) and Constrained Variable Bitrate.
CBR:
When referring to codecs, constant bit rate encoding means that the rate at which a codec's output data should be consumed is constant. CBR is useful for streaming multimedia content on limited capacity channels since it is the maximum bit rate that matters, not the average, so CBR would be used to take advantage of all of the capacity.
CBR would not be the optimal choice for storage as it would not allocate enough data for complex sections (resulting in degraded quality) while wasting data on simple sections. This issue can resolved by choosing a higher bitrate to ensure enough bits for the entire encoding.
Most coding schemes such as Huffman coding or run-length encoding produce variable-length codes, making perfect CBR difficult to achieve. This is partly solved by varying the quantization (quality), and fully solved by the use of padding. (However, CBR is implied in a simple scheme like reducing all 16-bit audio samples to 8 bits.)
Then to top it all off, after weeks of HB'ing my DVD rips into m4v's,
I've noticed/learned that OS X Quicktime X or 7 do not process AC3 very well (VLC seems to be the only media player that does).
I have been encoding my m4v's audio w/ AC3 only tracks:
1. AC3 (5.1) / AC3 / 6-Channel discrete / 48Hz / 640
2. AC3 Passthru
3. AC3 DD / Stereo
I thought this would "future proof" my DVD's to near lossless quality so that I can toss them. However, using AC3 for all my audio tracks has produced m4v's that crash Quicktime X or produce movies with severe static no matter what audio track I select. In some cases OS X forces an m4v to be played in QT 7.
You assured me of what I learned today, that AAC should be used for stereo devices and should be the first track.
In the end this is what I should be selecting for audio:
I encoded an m4v that was having audio issues and used this setup:
1. AC3 Passthru
2. AAC Stereo
It played fine on my Mac Pro in all applications. Is this ALL I need for audio, nothing else, and it will play full surround on my Pioneer VSX-33 (which handles all my m4v's on my aTV 2 with no issues)?
I'm so confused cause everyone has good points and I don't know what to do anymore! lol
Thanks to everyone who has put up with me over the past few weeks and has taught and helped me so much! 
