This is the process I would use.
Do all the editing you need to do on the material which is going to become your Chapter 1. Don’t put in any chapters. Make sure there is nothing else on your timeline. Go to Produce, not Create Disc. Click on Create a File, then Next. Click on AVI, or whatever format you want, then Next. In the next screen, click on the Ellipsis ( … ) button and give your file a name (say, Chapter 1) and choose a folder for it to be saved to. Then click Start Rendering and wait until you get the Congratulations message. Then click Home to return to Edit mode. Start a new project for your chapter 2 material.
Repeat this until you have all your chapter material finished, i.e. one file (,avi or .mpg) for each chapter. Note that you have not used the Chapter function of PD7 yet. You have not created any chapters, just files which will eventually become chapters.
Now open a new project, and import all of your recently created “chapter” files into the media room. Drag them all onto the timeline. Click on the Chapter Room icon, then under Auto Chapter Settings click the top icon i.e. “Insert chapter at the start of each clip”. A warning box will appear – just click OK. In your new movie you now have a chapter corresponding to each file you created.
Now go to Create Disc. Make sure that the check box at the bottom of the screen labelled “Create a disc without a menu” is unchecked. If you click on Preview you should see your chapters. Go back to Author and change the words “My Video” to something meaningful for your movie. At this time you can also change “Chapter 1”, “Chapter 2” to something more appropriate. (When you created the chapters in the Chapter Room you could also change their names at that time, rather than at the menu stage.) Now burn your disc.
Hope that helps.
Robert