Although there can be more than one cause of this error I want to document one reason that I've been seeing lately. Specifically, this error is caused by certain characters in the folder path that Transcode 360 cannot handle.
Here is an example T360 log highlighting the area of interest:
27/12/2008 9:30:12 AM *VRB* MEncoderTranscoder loaded
27/12/2008 9:30:12 AM *VRB* VLCTranscoder loaded
27/12/2008 9:30:12 AM *VRB* Using optimal resolutions
27/12/2008 9:30:12 AM Spawning: "C:\Program Files\Transcode360\Wrappers\MEncoderTranscoder\mencoder.exe" -quiet -delay 0.2 -oac lavc -srate 48000 -af lavcresample=48000 -of mpeg -mpegopts format=dvd -o "C:\Users\Public\Transcode360\TranscodeBuffer\Iron Man ‑ (Ultimate 2‑Disc Edition).360" -ovc copy dvd://1 -dvd-device "F:\Movies\Iron Man ‑ (Ultimate 2‑Disc Edition)\Iron Man ‑ (Ultimate 2‑Disc Edition).ISO"
27/12/2008 9:30:27 AM *ERR* Transcoding error:
27/12/2008 9:30:27 AM *ERR*
WARNING: OUTPUT FILE FORMAT IS _MPEG_. See -of help.
Couldn't open DVD device: F:\Movies\Iron Man - (Ultimate 2-Disc Edition)\Iron Man - (Ultimate 2-Disc Edition).ISO
No stream found to handle url dvd://1
Cannot open file/device.
Notice the last line 'Cannot open file/device'. This is due to certain characters in the path. Most likely the "(" and ")". Try removing the movie from the Collection Manager. Change the folder path to eliminate the charaters. In the above example rename the Iron Man folder name to just be Iron_Man. Now re-add it to Collection Manger. This time it should work.