Get MPEG Streamclip, which is free.
You will also need the Apple QuickTime MPEG2 Playback Component for $20.
Follow the instructions on the MPEG Streamclip website for installing the Apple QuickTime MPEG2 Playback Component. Here are those instructions for Mountain Lion and Lion as of 2012-0711-1605...
The installer of the MPEG-2 Playback Component may refuse to install the component in Lion and Mountain Lion. Apple states the component is unnecessary in Lion and Mountain Lion, however MPEG Streamclip still needs it.
To install the component in Lion or Mountain Lion, please download MPEG Streamclip 1.9.3b7 3b8 betaabove; inside the disk image you will find the Utility MPEG2 Component M. Lion: use it to install the MPEG-2 Playback Component in Lion or Mountain Lion. The original installer's disk image (QuickTimeMPEG2.dmg) is required.
The current versions of MPEG Streamclip cannot take advantage of the built-in MPEG-2 functionality of Lion and Mountain Lion. For MPEG-2 files you still need to install the QuickTime MPEG-2 Playback Component, which is not preinstalled in Lion and Mountain Lion. You don't have to install QuickTime 7.
Once you have done this, you can simply open MPEG Streamclip. Then open the DVD in the Finder and drag the VIDEO TS folder from the DVD into MPEG Streamclip. If MPEG Streamclip offers to fix Timecode Breaks, say Yes.
You can then FILE/EXPORT USING QUICKTIME and choose Apple Intermediate Codec as your video codec. Save this file where you can find it.
Then, in iMovie, use FILE/IMPORT MOVIE and select the file you just made.
In MPEG Streamclip, you can create shorter clips rather than one long clip if you want, as well. Do this by moving the playhead to the start of your clip, and pressing i (for In Point). Then move the playhead to the end of your clip, and press o (for Out Point). Then export using quicktime as mentioned above. Repeat this until you have all the clips you need.
This works in Leopard, Snow Leopard, and Lion. I have not tested it in Mountain Lion.