color problems encoding AVI to MPEG

[snipez]

hi
i'm having problems encoding an AVI to an MPEG. the problem is when I view the newly encoded MPEG, the colors seem to be more or less on the purple side. And i see small squares the odd time, (Somewhat like you see on TV when the TV loses sattiliete connection for a few seconds) Am I leaving some boxes unchecked in the encoder, or do I need other software. Or is it because I aborted the encoding half way through the process?
BTW I am using the newest version TMPGEnc-2.53.35.130

[setarip]

This problem sometimes occur when you try to encode the MPEG at a higher resolution than the original .AVI...

[snipez]

heres a screen cap of the AVI file info box.
and no, the size of the file is a constant 320x240.
maybe the file needs to be interlaced, if that makes any sense.