Maybe something didn't go well when you upgraded to the beta. While it shouldn't, it could be that a setting accidentally got changed.
* Make sure DVD Catalyst is not running
*Click on "START" > "RUN" (or hold down the windows-key on your keyboard and tap the "R" key)
*In the run dialog, type in:
and click OK
*delete the "DVD Catalyst 4" folder
This will reset DVD Catalyst to it's defaults, and will take care of most possible issues.
After that, start DVD Cat, select the Droid3 profile and start a conversion. When it gets a few minutes into the conversion, tap the "skip" button, and see if the created file plays in Quicktime (saves waiting for the entire conversion to complete)