My results thus far:
Using Nero 6:
DVD-ISO compliation, dragging test .bin & .cue over, burning to dvd+rw that I now my xbox will read. pcsxbox can see the files under iso9660 option, but keeps returning me to this menu when I try to load game. If you go up one directory and return to this 9660 option, you will see that the disc contents are now listed twice. Keep repeating this and it keeps re-listing them, so I would guess there is some bug here.
I next made a xISO using gdfimage, and burnt this. It appears when you choose UDF option, and loaded fine.
Next, a DVD-UDF compilation, using UDF 1.02 file system format. Didn't get detected.
Looks like you might need to be making xISOs. This however means you can't read the cd/dvd from your pc drive, only the xbox, if you want to retrieve the bin file at a late date.
It's strange, since the menus look like they support other formats. I might keep playing a bit over the next few days.