I put together my first mini-film at the weekend with the kids (a Harry Potter style thing - great fun).
But I really noticed that the clips I edited into the sequence which had been through Particle Illusion (for special effects) had an inferior picture quality to those which were plain.
When I import the raw video footage from my digital camera, the programme I use automatucally saves the clips as DV-AV files.
But those clips I want to add special effects too I export as AVI files in order for them to work in PI. I usually do this as uncompressed video.
Once I have added the special effects, I tend to export them from PI again as uncompressed AVI. But the uncompressed AVI clips do have a noticeably different quality to the plain DV-AV clips when run in a single sequence.
My suggestion is to never use uncompressed. Some people have trouble with it in pIllusion, and there's no reason for the HUGE files it creates, especially since you're starting with DV, which already has introduced compression.
I suggest downloading and using the Huffy UV codec as a replacement for uncompressed. It's a lossless compression format, but still won't create files as large as uncompressed.
The other thing you can try is using the Divx or xvid codecs set to a very high data rate. These are lossy codecs, but when set to a high data rate you won't be able to see any decrease in quality.