For DVDISO images I use avidemux, an editor which is not very well known by Windows users but which is very well known by Linux users and works flawlessly under Windows too. Cutting chapters into an MPEG-2 streams is a little tricky, you can cut only at a GOP boundary, avidemux has a GOP navigator - just go to the first GOP and delete all the stuff before it then go to the last GOP and delete all after it, then save to the desired file format (AVI, VOB, MKV etc.) using the copy function for both audio and video, no re-encoding will take place.