The AVI video is 4.2GB.
As you note later, this is irrelevant: if set to "Automatic" as the transcode setting for this asset, Encore will compress it when transcoded to a size that will fit.
the max size for a menu is 1GB./servlet/JiveServlet/downloadImage/2-5316621-329604/SG+001.JPG
The max size for all menus and such content is one GB. This is almost never an issue unless you have motion menus.
When you say the mp4 is an into, is it a timeline?
One way to fool Encore and its automatic settings, is to do the timeline asset transcode before you add things to the project. Encore fills the disk, then you fill it some more, and then you are over size.
On your asset, "revert to original." Make sure everything is in place, particular motion menus and your intro. Since your intro is an mp4 it also has to be transcoded, so we don't know how big it will be on disk. If it is a timeline, you're okay; just revert to original also, and make sure all your timelines are set to "automatic."
That's what I would try first.