Edit: I have not changed the rest of this post, but I see your post that you are building to a folder/iso. This increases the chances that this is a transcode issue, and not layer break (yet).
Transcode prior to the "build." When you transcode during part of the build, you can only use Encore's transcode engine: not good for downrez or general transcoding compared to using Adobe Media Encoder (available if you use to the option in preferences, but even then only if you use "transcode now" rather than during build). This still does not guarantee success, but it helps to isolate the transcode from the rest of the build.
Many users find that downrezzing for DVD does not work with dynamic link, and since you are already having problems, I would do as John suggests and export from PR/AME.
I assume you are running "as administrator." This is essentially required for dual layer.
Encore often has issues with the layer break. Many users find better success with building in Encore to a folder, and letting imgburn set the layers.
If you do not have chapters in your timelines, Encore may create a chapter in order to set a layer break. This can cause other oddities.