http://www.divx-digest.com/software/vobsub.html
I believe that is a link to a package that contains textsub, during the install, be sure to select custom install the virtualdub filters.
If that doesn't work, there is at least the subtitler filter, available here:
http://www.virtualdub.org/virtualdub_filters
Enjoy
EDIT:
http://www.digital-digest.com/dvd/ar.../divx2vcd.html
link to a guide that you might enjoy, it's encoding to mpeg, but goes through the guide to configure filters and you can change the codec used.