In large measure the quality "hit" probably took place back when the original video was encoded to MPEG-2 and authored onto the DVD. That might have been done preserving the signal well, or it might have been doing using bad encoding settings. If so, you'll never get the quality back.
So hope for a good original encoding.
Now that the encoding is a done deal, what you need to watch out for are transcoding errors on the way back form DVD to DV.
You want to decode back to as robust a DV stream as possible, before taking that and encoding it to AVI. And when you DO encode to AVI, again, you want to do so with as little compression as possible.
There are a lot of ways to get a signal off DVD and into your editing system, from direct digital transfer - to hooking up a video feed and simply reading the signal back into a DV deck via composite, component, or S-video.
There are programs designed specifically for ripping DVDs back into digital video. In the Mac world where I work, I use DVDxDV - which does direct digital data transfer. If you're on a PC I'm sure there are equivalent programs.