Which compression type

My SR11 will take SD video Once I import it, inspector shows it as Mpeg 2 740 x 480.
I have tried several different compression types and they all look OK, stills looked better than the video though in all cases. The color was much deeper and more vivid. (stills were from the same camera).
My question is which compression type should give me the best picture quality on export when the final product is a DVD burned with Toast 9?
I am trying the SD setting to save time and space for shooting home contents videos. There are some cuts, fade in and out to black, some titles and that is about it. Nothing too fancy. Would I get better results shooting in 1080i and importing as a large file instead of a full import, when compared to SD?
My camera is USB connect so I am trying to get this t work in iMovie 08, although I have imported the clips into iMoviehd6, but didn't see much difference. If it matters I am viewing the movies on a 37 inch Sharp Aquos LCD TV with a Sony Blu-ray player. So there is some upscaling going on. Neither unit is noted for great upscaling abilities in my research.
Thanks in advance for any help.

Did some more testing this afternoon. Recorded different subject for this test. A action figure, test pattern and a toy car going down a ramp. Zooming was done using the camera remote.
Recorded in SD best quality setting, recording to the SD card. Imported with iMovie 08.
Recorded in HD best quality. Imported to imovie 08 using large import.
Took 2 stills of same subjects and imported to iPhoto
The sd clips in iMovie events were MPEG 2 720x480
The HD clips were 960 x 540 AIC
Added title, fades and clips plus stills.
Exported as AIC current size. Both the SD & HD clips were now 960 x 540, so iMovie did some work on the SD clips.
Opened iMovie HD6 and repeated the same editing. Closed iMoviehd after saving each project, which were DV wide.
If I were to do an export from iMovie Hd the current size showed up as 869x480 in both cases?
Burnt a DVD with the iMovie 08 results and then a second DVD with the iMovie HD results. All burning was done to DVD RW using Toast 9 set to auto encoding. The iMovie HD6 dvd was done by dragging the project into toast. The DVD player was reset to output 480i.
In both cases the iMovie 08 movies looked better with the HD clips imported as large being the better.
So for my SD DVD run and gun burn a disk, looks like iMovie 08 using full HD source imported as large will yield the most bang for the buck.
Any thoughts about any settings that I could change to perhaps improve things a little more?

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So for future reference I assume we should pull the media out of the AVCHD folder structure, correct?
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