Awesome forum. Thank you so much guys. Well Murphy's law, or I guess the opposite, reared its cliched head shortly after I posted and I found a solution using the trim function that worked. The mistake I was making was doing my trimming in the preview window and then dragging that down to the timeline. The 40 minute video was still in the library and it occured to me that maybe that was the section that Produce was working from. And I guess it was.
So I erased the initial trim, dragged the entire vid down to the timeline from the library and redid the set points for my trim in the Trim section. Then when I went to Produce the first thing noticed was that the amount of video about to be encoded was quite small. Ah ha thinks I, a good sign. Then when I hit preview while encoding it brought up the beginning of the trimmed section. After that everything went quite smoothly.
I did a few more sections in different formats. Boy you're right.....avi files are ridiculously huge. MPEG-2 is great. Also, it encodes so much faster if you turn off the preview box.
I'll definitely try the split methods and other great tips mentioned. And I'm pretty sure I'll be back with more noobish questions in the future although I'll try my best to not to bother you guys too much.
Again many thanks for the quick help.
Harry (actually Tom)