Use Imovie HD ( version 6, free download from apple.. google for it ) instead of iMovie '08. Import your footage there and then do your edits and send it directly to iDVD there. in iDVD make sure you are in "best quality" or "professional quality" mode.
If it still looks bad from that, you will need to post a screen shot or something we can see. Also, make sure when you are evaluating the quality of it, you were doing so from a real TV in a real DVD player.