If you make DV video fill the full screen it will always look bad. Your screen has (at least) a resolution of 1024x768. DV has a resolution 720x480. Any time you stretch it that much, it'll look bad. Personally, I always try to leave my preview/canvas screen at 100% size. That way you get no distortion.
Your best option is to push your "full screen" video to a TV. I know FCP does this, not sure about FCE. On a TV you'll see the real color and quality of DV. It really does look a lot better on a TV screen.