I just saw the thread dealing with .MPG file editing and thought I'd put my 2 cents in.
MPEG Editing is not simple. Before you buy an MPEG editor, you must realize that MPEG was not designed to be edited. MPEG is a high-powered compression algorithm made for pre-edited video that is simply played back as-is and never changed.
The main thing that makes it difficult to edit MPEG video is that an MPEG encoder only puts out one full "reference" frame for every 14 or so "difference" frames. These difference frames only encode what changed since the reference frame. This is where MPEG's high compression comes from: difference frames are much smaller than reference frames. (This is an oversimplified explanation, but it suffices.)
Since difference frames depend on a previous reference frame in order to be decoded, the only place in an MPEG stream that you can do simple cuts is right before a reference frame. If you were to cut the video before a difference frame, that difference frame and all subsequent difference frames would refer to a preceding reference frame that doesn't exist any more. That stream would then fail to decode properly.
The simplest type of MPEG editor doesn't try to work around this problem. So-called "GOP-accurate editors" only do cuts on a "group of pictures" boundary. A GOP is a self-contained set of frames that starts with a reference frame. The problem with GOP-accurate editors is that GOPs are typically 12-18 frames long, meaning that you may be forced to make a cut up to 11-17 frames before or after the most optimal cut point; that means your clips can be about half a second too long or too short. This is adequate for cutting commercials out of a television program you recorded, but not accurate enough for serious video editing.
The more powerful MPEG editor type is one that can re-encode the stream as necessary. This allows the editor to do frame-accurate cuts, because it can re-encode split GOPs. This type of MPEG editor can also offer tools that change the frames themselves (e.g., titling and transitions) because it can re-encode all the GOPs that contain changed frames.
Virtualdub-MPEG2 can read MPEG1, MPEG2, and VOB files, but it cannot create them. It does have the ability to create MPEG4 files if you have the proper codec installed however.
M2-edit Pro or womble MPEG2VCR are both very good frame accurate MPEG2 editors and they also have transition effects.
TMPGEnc can be used if you only want to cut and merge. In the File/MPEG Tools menu there is a merge and cut tool.
This site used to have a lot of good editing programs, but I don't know if it is still up. The links section looked like it had some promise.
Another site to look at is this one.