install nautilus-actions that allows you to create custom entries and fine tune their properties (files or dirs, filetypes, single or multiple selection)
as for script part
assuming that your script gets movie file as a parameter - name will be stored in $1
Code:
#!/bin/bash
mencoder "$1" -sub moviesubs.srt -subfont-text-scale 3.3 -subpos 96 -o /dev/null -oac copy -ovc lavc -lavcopts vcodec=mpeg4:vpass=1 -o "${1%.*}WithSubs.${1##*.}"
there is some voodoo just in case you want to preserve file extension, but not necessarily hardcoded avi
${1%.*} = everything from $1 except shortest possible '.<anything>' on the right -> extension is out, name stays
${1##*.} = everything from $1 except longest possible '<anything>.' on the left -> whole name is out, extension stays
i don't know if the subs file should be dependent on movie name so i left it untouched
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