Found this at a site and thought it'll be useful.
Tools required:
Latest ffdshow or latest vobsub
TMPGenc

Preparation
First be sure that you have your subs in sub or srt format. You find a lot of subtitles converters here if you have the subtitles in some other format or if you want to make your own subtitles.

Rename the subtitle file to the same name as the video but with a .sub or .srt extension(Be sure to turn of Hide extension for known files types in Windows Explorer under Tools->Folder Options->View). Example:

video.avi
video.sub

Guide

First we must install a subtitle filter. You can use ffdshow or vobsub subtitle filter.

Using vobsub filter
Install vobsub and you are done. To change subtitles settings run the vobsub configure from the Start menu->vobsub.

or Using ffdshow filter
Install ffdshow and run the ffdshow Configuration from the Start menu->ffdshow->Configuration.
1. Select Subtitles in the menu to the left
2. Enable the subtitles.
3. Hit Ok.

Now should the subtitles appear if you play the video with Media Player. If not then the subtitles may be in wrong format.


Converting to VCD,SVCD,DVD or AVI

Convert with TMPGenc
Start TMPGEnc and close the Wizard. First change the Directshow priority in TMPGEnc (the Directshow reader reads the subtitles the same way as Media Player).
1. Select Option->Enviromentel Settings
2. Select VFAPI Plugin
3. Right click on the Directshow Multimedia File Reader and select Higher Priority, repeat it until it is on the top of the list.

Open the video with wizard or manual. The subtitles should now appear. Use File->Preview in TMPGEnc to check that you can see the subtitles before encoding.

Last just convert to VCD or SVCD or DVD as usual.

To convert to AVI,DivX or XviD with permanent subtitles use TMPGEnc. In TMPGEnc first close the wizard, choose file->new project, open the video, choose File->Output to file->AVI File. Select a video compression like DivX or XviD and choose an audio compression like MP3 and hit save.

Done.

Problems

The subs doesn't appear.
Try with both ffdshow and vobsub. Be sure that subs are in sub or srt format.

Be sure to change the directshow prirority in TMPgenc.

nice 1 akka.. good one ..keep it up.........

lovely work akka. i´m sure it will be very helpful

thnx akkka.....

Thanks...........

thanks for sharing...good explanations

Thanks Akka

WOW what a guide. I was going through a similar experience trying to insert a srt file in a movie No Mans Land....(remember Lagaan ...Oscars...)
I had to use VirtualDub which by all means IS little taxing. I had to browse for hours together.
Thanks for the guide.

thx man nice 1

very usefull
thanks again

Woow man,
really great, usefull help, really appreciate it
thnx man, great job, keep it up!!!

thanks for the very useful topic. Ive just tried it out and it works marvelously

thanx akka for da helpful post....

Im actually having problems with the volume. No audio can be heard when converted. Can anyone help me here plz? Thanks

thanks man! helps alot