I believe I posted about this a year or so ago and never got a resolution(no pun intended.) When I have a letterboxed DVD where the aspect ratio cropped would be 1.85:1 and use HC and select the AviSynth "convert 4x3 to 16x9" feature, the video comes out fine. However if there are subtitles, no matter which you select with the subtitle button on the remote, you get the first one. I tried double clicking to x out the unwanted subs. That didn't work either. It's really frustrating because most of my movies have subs. I end up having to convert to avi with AutoGK, ripping the subs with AvsRip, removing all but the English subs with VobSubStrip, and adding subs with AviAddXSubs to get a .divx file. Seems like the AviSynth is just grabbing the first sub it finds.
I haven't done exhaustive testing but it seems like the trick is to keep the menus. Select the subtitle using the menu instead of the remote button. Note that the source movie has to be just about exactly 1.85:1 with the black bars removed, or after processing everything will be stretched wide. For non 1.85:1 probably the best you can do with free or inexpensive software is AutoGK. AutoGK will autocrop. Then just rip the subs using VSRip and add them to the .avi using AviAddXSubs. If you have a player than can handle .divx files with subs you should be good to go. I prefer to convert to 16x9 DVD if possible since DVD-RB Pro lets me run 4 copies of HC encoder on my quadcore. Squeezing the bitrate down to .avi with AutoGK takes longer.