Just going thru my setup with the same goal, to 'just remove the commercials' in WMC 7.
I suspect you want the WTV Unprocessed option. The AVI option implies re-encoding, AVI and TS files show up in the Media Library, so far I found that only WTV and DVRMS show up in Recorded TV.
I do have a question as I am using the WTV Unprocessed option with the same goal but I believe it is re-encoding my mpeg2 audio into ac3 audio, which is OK within WMC, but there is an issue when accessing media center via my WD TV Live Plus which has a known problem with the ac3 encoding and I get no sound. I know it works with the original audio encoding.
Looking in profiles.conf and at the [WTV Unprocessed] profile, I see the following lines:
ffmpeg-audio=-acodec ac3 -ab 192k
ffmpeg-audioac3=-acodec ac3 -ab 384K
which I believe are causing this re-encoding.
What would I change them to, to retain the original audio encoding? I believe was the original question and drills into the suggestion to use the 'Copy encoder'?