You are, unfortunately, correct.
Playing a DVD image folder (ifo) needs the Windows DVD Navigator filter to parse the menu structure and files. This (in Windows 7, not XP) has 'macrovision' protection in it which insists on using Microsoft renderers eg EVR and gives an error if you try and use MadVR.
A workaround (for MPC-HC at least) is to install the XP version of the DVD Navigator filter on your Windows 7 system folder. This doesn't seem to have the same restriction. Just google 'MadVR macrovision error fix' for more details. However there's no way (that I've found) to force MC into using MadVR for DVD even with this tweak. It's a shame really, because it is the format that I have the most of and MadVR would be really useful for this content.
Fixing the issue, it seems, has stumped madshi (Dev of MadVR) and nevcairiel (Dev of LAV Filters). Nevcairiel has publicly said that it is low down any priority list since he considers it an outdated format. So don't hold your breath for a quick fix.
SBR