I must be doing something stupid: Very poor quality DVD rendering!

I am new to Apple products and after trolling this forum, I was able to create a DVD using iDVD on my Mac mini Core Duo - 2Ghz model. But, the video is of very poor quality (compression artifacts). I am lookging for guidance to creating a better video quality. But first, let me give you some background...
I have created enough DVDs for my home videos captured both from my S-VHS camcorder and min-DV camcorders (both PAL and NTSC) using Pinnacle Studio (buggiest software in the world) and Adobe Premiere Elements under Windows. I have clear expectation of video quality and understand the quality differences between various standards.
I have a fairly new toy - Canon Powershot TX1 digital camera which is an amazing compact camera that shoots 720p video @ 30fps and stores them in MJPEG format. Very good optics (10x optical image stabilized zoom). The only con is that it has very poor low light shooting ability.
The steps I took to create this DVD...
1. Import the .avi and .jpeg files from my camera into iPhoto library.
2. Use iMovie (all part of iLife'08) to stitch the avi clips and also some of jpegs. Added transitions, titles and music in iMovie.
3. Also, added some of my old low resolution avi files (from my older Canon camera - probably in 640x480 resolution).
3. Exported it in the largest file mode (960x540) which created a 1.8GB file.
4. Opened this movie file in Garageband and added the Chapter markers.
5. Shared it with iDVD which automatically launched iDVD and showed the chapters in very nice scene selections menus.
6. Invoked the Burn menu to burn the movie into a DVD using iDVD.
Am I using the right methodology (I want the chapters)? I also observed that an earlier project which was pure 15 minutes of 720p content created a 4.7GB size exported file from iMovie whereas this current project has 51min of avi (of which about 10min is low res and the rest is in 720p format) and 12min of still photos produced a 1.8GB file when exported. This clearly tells me that the exported file is of poor quality. Why did that happen? Was it because I mixed the content and included low res videos?
I should probably try creating a DVD from the pure 720p content and see how that looks.
Any pointers would be a great help. BTW, the mac mini, iPhoto and iMovie forums are just awesome. The quality of posts and responses is very high.

Thanks a lot, F Shippey.
I exported it as a .dv file and then I was able to produce the DVD correctly with the Revolution theme and 11 chapters. I haven't done any editing any clips yet in iMovie. In most cases, I will not need to do that in most cases as the Canon TX1 creates individual avi clips every time I record and stop a recording. Having used a camcorder for over a decade now, I know how silly most of the recordings are.
I will be rendering most of my videos as h.264 so that I can use the mac mini as a media server instead of using DVDs. I have to rip my own DVDs as h.264 soon (back to handbrake).
PS: While creating my first DVD in OS X + iLife'08 tools, I noticed the following bugs:
1. The clips disappear from the display in the editing window when the project becomes large and I had to zoom in and out to make them reappear. I verified that I wasn't viewing past the end of the last clip. If I hover the mouse in the blank window, it will show the clip in the preview window on the right.
2. I had 11 chapters marked in Garageband and then I shared it with iDVD, it created two pages of scene selections with 6 chapters in each page. In the 2nd page, it added a random window (unconnected) for the 12th chapter that I didn't have. I didn't check for that and so my finished DVD has this weird 12th chapter with a copied moving clip in the window, but when selected, it doesn't do anything.
These two bugs are way few compared to what Pinnacle Studio threw at me.
Message was edited by: new2appletv

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Message was edited by: Brandon Rohde

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I have edited a project on Final Cut Pro 5.1. The
project was shot in 960 HD
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I exported the finished project using the "Export Quicktime" command
in FCP. When I open the quicktime file, it plays
beautifully in QT on my computer. I build an iDVD
project and dragged the file in. On the iDVD preview,
it plays in very high quality, but when I finally
burn the DVD, it plays terribly.
The preview function in iDVD (and iMovie) plays the RAW source material and has no relation to the actual final encoded quality.
I can see wavy lines and the sharpness is very poor.
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HEY, AM I READING THIS RIGHT, (yeah I'm shouting)
Your telling us you know how to use im08 and iDVD in some way that (apparently) no-one else knows but you won't share it, at the same time as advertising your book in your signature. I think you should be reading the terms and conditions of the forum here.
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