Long Answer: Yes. Lets assume you are encoding a hollywood movie. Since the HD-DVD is recorded at higher resolution and overall bitrate, you can select a bitrate that is higher for both video and audio than the one that the Studio picked for their regular DVD release. Especially if this is a movie longer than typical and they choose to squeeze it on 1 DVD.
Also if you don't mind multiple DVDs you can make this be even higher.
But you're stuck with the resolution at 720x480, so you're going to hit an upper limit where it won't "look" any better even at higher bitrates.
Is all this worth it? Rent the released DVD and compare. I'm guessing it won't be a noticable difference, though there are some terrible DVDs out there.
This is a kind of old thread but I came across it in a search for something else and I didn't think the OP's question was answered accurately or adequately.
What you are doing is possible, yes. I think a lot of the people who responded assumed you wanted to make a DVD Video standard compliant disc. I assume that's not the case, else you would have just bought/rented/whatever the regular DVD.
What you want to do, I think, is make an HD copy of the movie and store it on a DVD-9. This is prefectly possible, and is in fact part of the HD-DVD (and BD) standard. You can even make the disc with the HD-DVD disc structure so it will playback in a stand alone HD-DVD player (that's called 3x DVD).
In either case, what you are doing is taking a high bittrate, high resolution video file and transcoding it into a lower bittrate, lower resolution file. How low you go is Dependant on how long the video is and how many discs you want to use. You can get pretty good (read: better than most cable companies HDTV channels, and on par with OTA HD broadcasts) quality with h264 on a DVD-R DL. If you shrink to 720p (true HD regardless of what Sony wants to tell you) and compress at ~10mbps (which is double the bittrate the Apple TV plays back for the same resolution, btw) you can squeeze 2 hours onto a DVD-R DL with enough space left over for a full 5.1 AC3 soundtrack.
If you want to play these back on a stand alone HDDVD player, you'll need to format the discs directory structure correctly and use the right file structure, etc. On the other hand, if you wanted to play these back via a media center PC or an XBox360 or something you can just through h264 files onto a disc and play it (although some devices may not like files over 4gb).
Hope that gives you a little more something to go on...