My AVI capture is clearer than my MPEG capture

I'm trying to simply capture video from my camcorder, edit it and add a menu and some screens throughout the video, and burn it to DVD. So far, I've captured a video in two different formats: AVI and MPEG. The AVI capture is much clearer (but takes 3,000,000 KB) while the MPEG capture is fuzzier (and takes 600,000 KB).

Do I need to encode to MPEG to burn to a DVD? If so, how can I encode my AVI files to MPEG while keeping the quality? When I use some encoding programs, I get all these errors saying aspect ratio is wrong, frames per second is wrong, etc.

I'm not a computer expert in AV matters and I don't want to become one. I want to do this simply. How can I do it?

 

Yes, the files need to be mpeg2 for DVD. There's a couple of programs that come well recommended: AVI2DVD: http://www.videohelp.com/tools?tool=Avi2Dvd

and DVD Flick: http://www.videohelp.com/tools?tool=DVD_Flick

 

For editing video, AVI is always the best choice. MPEG is designed to be a playback format and was not intended to be used as source material for editing.

http://forums.techguy.org/multimedia/519402-capturing-vhs-hi-8-archiving.html