Rob,
Never used Elements, so not familiar with what the Export options are. However, H.264 is best used an a delivery format and not an "intermediate" codec. By first converting to H.264, then letting Encore transcode again, there is quality loss. If you must use an intermediate, an .avi would be a better choice, something high-quality with less compression. For instance the free Lagarith or UT codecs are great (just download/install) if Elements export options would let you configure something like that. Basically a lossless encode step (or as close to lossless as possible). Then bring that .avi into Encore.
To add to Stan's comment, IF Elements does have an "H.264 Blu-ray" export option available, that should result in .m4v and .wav clips, m2t is not part of the equation.
Thanks
Jeff