There is also a second line in dvd.sh containing "ac3":
<audio format="ac3" lang="en"/>
Shouldn't also "ac3" in this line be replaced by "lpcm"?
No, apparently not -- I tested by changing it to both lpcm and pcm but apparently "dvdauthor" does not like that with the rest of the parameters. I will look to see if I can figure out why.
If I do so, running the script results in
INFO: default video format is PAL
ERR: Cannot parse audio option 'lpcm'
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dvd.mpg is created and looks ok with lpcm included
But the iso is empty!?
Yes, I got an empty iso too.