I have compressed more than 50 C4 recordings using custom handbrake settings in the past and C4 uses AAC, but I left the audio as AAC, can your device not handle AAC audio? I'm not sure if I ever tried recording it as an mp3. Have you tried avidemux as an alternative, not sure if it can read .ts files, but i'm sure it could handle a handbrake mkv in a 2 step transcode.