Is there an alternative to compressor in FCS 1?

Quicktime Pro should do much the same as Compressor, though maybe not so nicely.
The QT Pro key comes with FCS

 

Streamclip

There are a number of free programs out there that will accomplish this. Personally I like to use Streamclip. Just make a self-contained mov file and open it in streamclip and away you go.

 

Streamclip is your best bet. It doesn't even have to be self-contained out of Final Cut, STREAMCLIP can use QuickTime reference movies as well. You can download it here:

http://www.squared5.com/svideo/mpeg-streamclip-mac.html

 

Direct Export from FCP

You can use Final Cut to directly export a file, the quality would probably be close to if you used Compressor. You're still tying up Final Cut and you'd save yourself a step. Or if you are using DVD Studio Pro (or even iDVD) to author your DVD just drag a self contained directly into the menu window and DVDSP will encode it for you.

ReReCompressing footage never helps quality, so you want to do it in as few steps as possible. You shouldn't be using H.264 on the way to Mpeg 2 for authoring a DVD. Use a higher res intermediate codec if you must make a movie before encoding it again for DVD authoring.