720x480 resolution is bad

I'm a noobie to Encore, I just created my first disc. The source is a Primere Pro project at 1920x1080 but after Encore gets through with it it's 720x480 and I can't find any way to change it. I know DVD doesn't support 1080p but I thought that it did support 720p. Am I doing something wrong or is this one of those "works as designed" issues? Honestly, the pixelation is so bad that it's useless. I even have an upsampling DVD player/recorder. When I record from TV it looks fantastic compared to Encore's recording so I know that the DVD format is capable of higher resolution.

FOLLOW UP:
I purchased "DVD Demystified, 3rd ed" by Jim Taylor. It is an excellent book on all of the technical details of DVD authoring; I'm about 2/3 through it.
Along with this I've been poking at Encore to try and apply what I've learned. My 2nd and 3rd try was no better than the 1st that I originally complained about no matter what settings I used. The problem was that the Transcode Status was "transcoded", which appearently caches the transcoding step so that all my settings changes were ignored until I set the status back to un-transcoded; then my new settings took effect and the result was what I was shooting for. I'm still feel like I'm taking a shot in the dark with the settings I've chosen and would like to know if people think this is overkill.
Source
Premiere Pro project, 1920 x 1080 x 29.97fps progressive
Encore
Project Settings
Authoring mode: DVD
Transcode Settings:
Codec: MPEG-2
Dimensions: 720x480
Frame Rate: 29.97
Audio Transcoding Scheme: Dolby Digital
Maximum Audio/Video Bitrate: 8.0 Mbps
Properties
DVD Transcode: NTSC DV 23.976 High quality 7Mb VBR 2 Pass
Transcode Settings
NTSC
720 x 480
29.97fps
Quality: 5.0
Progressive VBR, 2 Pass
Min 4.89
Target 7.10
Max 9.0
Dolby Digital 192 kbps, 48kHz
GOP Settings
M Frames: 3
N Frames: 12

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