LP and SP don't matter... every DV format in consumer camcorders runs at 25Mb/s, and is of identical quality. LP runs the tape at a slower speed, which makes it more prone to dropouts, but it's the same quality. One of my camcorders supports DVCam mode, which runs faster than SP.. still the same quality, but even less prone to dropouts. Very high-end DV camcorders run one of the DV50 variants, which records at 50Mb/s, and there are a few options even above that. But only in pro cameras.
It's quite possible to match the quality of DV on your DVD, but it's by no means automatic. The encoder you use to create your MPEG-2 (H.262... though that name is pretty much never used) videos in prep for DVD. High quality encoders use multi-pass encoding and various other tweaks to ensure full quality in a DVD project. In general, do be sure to encode into DVD-compliant MPEG-2... if you don't, your DVD authoring application will re-encode your MPEG-2. I would assume if you're using the one app, iMove, to do the whole job, it accounts for this and always produces DVD-level video when authoring for DVD.
While technically there's additional loss going from DV to MPEG-2/DVD, this loss can be essentially imperceptible. People who don't understand video compression make a big deal about DV being 25Mb/s and MPEG-2 on DVD generally limited to about 9Mb/s (it depends on how much bandwidth you're allocating for audio), but they're very different kinds of compression -- the bitrates are not comparable. You probably know from viewing commercially produced DVDs that DVDs can look better than the video you get from your camcorder.
My guess is that iMovie has a fairly weak MPEG-2 encoder. Not being a Machead, I don't know what's better on MacOS, but there certainly are tools that produce production quality MPEG-2 on Macs. You may have to pay more for such... but you should look into tweaking the settings on iMovie.
Ok... just did a quick search... there may be a general problem with making DVDs using iMovie. It probably depends on the version you're using, but it sure looks like, in a least some versions of iMovie, Apple has sabotaged the DVD creation process... they claim to only use single field processing.. in other words, they're dropping half of your video information -- a horribly evil thing to do. That would be extremely obvious... your 720x480 DV would be rendered effectively as 720x240 (they would have to double it up to make legal DVD video). I have no idea in the world why Apple would do this, but that's the claim, and it kind of tracks what you're experiencing (the claim is this happens in iMovie 08, but not iMovie 06). Anyway, you definitely want to read this thread, and see what kind of fixes they've come up with. See here:
http://discussions.apple.com/thread.jspa?threadID=1501527&tstart=30
You can't dump DV directly to DVD. Well... sure you could, but no DVD player would play it. And you'd need lots of DVDs. At 25Mb/s, DV takes up about 12GB for every hour of video (part of the reason there's 4TB worth of hard drives sitting to my right here). You would get just over 1/2 hour per DVD using DVD+DL discs... kind of a problem. DVD players only guarantee to play MPEG-2, and in fact, only MPEG-2 that follows the DVD-Video standard.