Encore 2.0 supports "exiting" at chapter marks, meaning if you enter the timeline at chapter 6, you can exit at chapter 7. If you have any version earlier than 2.0, you can't do it. It will enter at whatever chapter and play till the end of the timeline. Where the video was edited and/or transcoded is not the issue here.
I use Encore 1.5. I don't know the exact procedure in 2.0 to accomplish exiting at chapter marks but I do know for a fact that 2.0 (and up) allows exiting at chapter marks. I think it involves the use of playlists. Maybe someone else with 2.0 can explain it better than me. I hope this helps (a little)!