I'm sure this is an easy question but i've never authored a dvd before. The audio for the dvd I am creating is in AC3 format. Does that need to go in the Audio TS folder?
Nope, the AUDIO_TS folder is just a required part of a DVD as per the DVD Specification. The thing is empty 99.99% of the time. Your Audio gets muxed back in to the .vobs at some point and resides in the VIDEO_TS folder. Some slightly related light reading: http://www.dvd-replica.com/DVD/index.php