TMPGenc will open MPEG-2, at least the last time I downloaded it that was true, but a large number of people who have used it for editing have reported terrible audio sync problems after doing so. Not everyone has this problem, but many do. Virtual Dub won't touch MPEG-2 video, although I have read of a hacked version that would handle it. Never tried it. The best editor, in my opinion, is MPEG2VCR.
http://www.womble.com. It's not
cheap ($250 US), but it is a great product. Rich has some instructions on how to use it at his web page of
http://www.pcphotovideo.com. As far as blocks go, that is dependent on your bit rate. No blocks? You better be using a really high bit rate. MPEG2VCR won't introduce blocks into your video, but if you are recording at SVCD bit rates, your goal is probably not realistic as you are probably going to have some blocks in everything you record. It's just a question of whether you can live with it or not.