The source is Quicktime Movie, 720x576, DVC-PAL, Linear PCM, Colour Profile PAL (5-1-6).
It was originally analogue Video8/Hi8, but I've digitised it using a JVC SR-VS30 onto MiniDV, I tried various USB Video Converters and wasn't impressed with the quality when comparing the digitised images on a frame by frame basis, I felt I was losing even more definition.
I did notice the encoding options under Customize, so will probably commit to creating a few test DVDs with various settings and see what the playback is like on a physical DVD Player. You're right, it's Automatically choosing the wrong setting obviously.
I've got a bitrate calculator for Video and Audio onto DVD, which I normally rely upon to maximise bandwidth, and started to question my perfect record with encoding HD onto DVD. Thanks for pointing me to a solution to this SD encoding problem.
I may have a look at the source using MPEG Streamclip, just for interests sake.