I've used iMovie and Roxio to make a VCD, but never an SVCD. I'm not sure if you can or not. I used Quicktime to do the conversion to mpeg, but I don't remember seeing an SVCD encoder option in Toast or QT. I read later that you had to use a third party encoder to do SVCD, but I haven't investigated it since. I will soon, however!
The video that I did in iMovie 3, then converted to VCD with QT and burnt with Toast had both the original audio as well as the iTunes imported audio. Not sure what the problem is, but I would suspect the conversion phase. It sounds like you used Toast to do the conversion to mpeg, which is the only difference to the way I did it...