CS4 Best Encoding Procedure for HD to SD?

I am working on a wedding project in Premiere CS4. Half of my footage is shot with a Canon XL2 (SD) and the other half with Canon XHA1(HDV). I decided not to uprez my SD footage to HD since Red Giant is giving me tons of problems: http://www.youtube.com/watch?v=fZHHa_G5_UI
What I want to do is work on the hd and sd footage in an sd project and export in the end to mpeg2 (DVD).
Now my problem is left for the professionals to answer: What is the best encoding procedure for the SD export quality to be best. Should I encode in MPEG 2, or dvd, or another format since the footage is both hdv and sd. Another BIG issue is that hdv (I heard) is upper field, while sd is lower field. I shot in interlaced mode so what is the best way to encode without losing quality if my XL2 is lower field and XH A1 is upper.
Note: converting to progressive is NOT an option for me. PP looses a ton of quality converting to progressive. Red GIANT ****** takes FOREVER to convert interlaced to progressive. I tried a 10 min footage and it took like 60 hours to convert (realistically). And I have a quad core processor.
So, good insight would really help me out. I struggled for weeks with Red Giant, but they're a disapointment because it seems they don't know much about 64 bit processors.
Summary: Need best way or procedure to encode both SD and HD footage in one project to DVD output without losing quality.

The easiest and imo the best way is to capture the hdv footage as SD
Edit everything in SD and burn to dvd.

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