I've not used the Magic iDVD option so don't know what it does with the photos you provide it but have create many, many iDVD slideshow projects with photos from iPhoto and have had extremely good results.
I create an iDVD project, add a slideshow, move the photos I want (cropped to 4:3 size ratio beforehand) to the slideshow, add music and save the project as a disk image (this separates encoding problems from burning problems). I mount and play the disk image with DVD Player and once I'm satisfied all is well I burn the disk image to disk using Disk Utility or Toast as the
slowest burn speed possible using top quality media, Verbatium, Maxell or Taiyo Yuden DVD-R, which are the most recommended in these forums.
Since I'm not familiar with Magic iDVD tell me a couple of things: are you creating the slideshow in iPhoto or just making the still photos available to iDVD by placing them in an album for export to iDVD?
If you're creating the slideshow in iPhoto and use the Ken Burns effect the image size should be a minimum of 1440 x 1080 pixels in size to help keep the image sharp during the zooming of the KB effect. The output resolution of DVDs is 720 x 540 - a DVD standard and not iDVD issue. The slideshow is converted to a Quicktime movie format for use in iDVD. Then iDVD encodes the QT file again in its process. That's a lot of compression from the original source files.
For what it's worth here are some tips for preparing photos for use in iDVD that might help:
http://docs.info.apple.com/article.html?path=iDVD/7.0/en/6675.html
http://www.scantips.com/basics1f.html
TIP:
For insurance against the iPhoto database corruption that many users have experienced I recommend making a backup copy of the Library6.iPhoto (iPhoto.Library for iPhoto 5 and earlier versions) database file and keep it current. If problems crop up where iPhoto suddenly can't see any photos or thinks there are no photos in the library, replacing the working Library6.iPhoto file with the backup will often get the library back. By keeping it current I mean backup after each import and/or any serious editing or work on books, slideshows, calendars, cards, etc. That insures that if a problem pops up and you do need to replace the database file, you'll retain all those efforts. It doesn't take long to make the backup and it's good insurance.
I've created an Automator workflow application (requires Tiger or later), iPhoto dB File Backup, that will copy the selected Library6.iPhoto file from your iPhoto Library folder to the Pictures folder, replacing any previous version of it. There are versions that are compatible with iPhoto 5, 6, 7 and 8 libraries and Tiger and Leopard. Just put the application in the Dock and click on it whenever you want to backup the dB file. iPhoto does not have to be closed to run the application, just idle. You can download it at Toad's Cellar. Be sure to read the Read Me pdf file.
NOTE: The new rebuild option in iPhoto 09 (v. 8.0.2), Rebuild the iPhoto Library Database from automatic backup" makes this tip obsolete.