DVDs are SD. Your footage is HD. Yes, when you blow up SD to HD size it'll look really soft...like you did with the screen captures. You blew up the DVD encode to match the size of the original HD footage.
Your HD is 1920x1080. SD is 720x480...yes, a LOT of quality is lost when going HD to SD. Show a screen shot of the DVD encode actual size...it'll look better.
Shane
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