1) Use regedit check the following key values (correct where required)
Go to -> HKEY_LOCAL_MACHINE\SOFTWARE\Ulead Systems\Ulead DVD MovieFactory\2.0\Installer
Make sure that the following string values are correct:
AC3="1"
AC3Value="7"
PlayAC3="1"
DecodeAC3="1"
UleadAC3Encode="1"

2) Backup the file "dmfenc.dll" in your Ulead Movie Factory 2 program folder
Replace with the one supplied (It comes from the version supplied with MedioStudio Pro 7)

3) Edit the DVDMF.INI file (found typically in "C:\Documents and Settings\All Users\Application Data\Ulead Systems\Ulead DVD MovieFactory\2.01") and ensure that the following entries are correct

[VIODRIVER]
PlayAC3=1
DecodeAC3=1
UleadAC3Encode=1
Advance=1