The procedure you are using will not give you the best quality.
All good analog to digital video converters use Firewire (I tried many USB units). Firewire converters give much higher quality and better results. Look at the Grassvalley ADVC300. Audio and Video go in, FireWire comes out.
The program that comes with the ADVC300 has some nice filters that can improve video and audio of the source material. The ADVC300 will take Audio and Video from any source and convert it to FireWire (iMovie will treat it like a camera).
http://www.grassvalley.com/products/advc300
The ADVC300 is for anyone who wants to do editing and is concerned about quality of color and speed, for the novice it is an incredible gizmo that will restore VHS tapes to a state close to the original fixing midtones, highlights and shadows on the fly. Not only can you simply convert analog to digital you can actually manipulate the signal going in (if you want to).
A bit pricey bit it WORKS.
I would use iMovie 06 with iDVD 09.
iMovie 09 uses 'single field processing' meaning every other horizontal line of the video is thrown out, which reduces the sharpness of the footage. iMovie 06 uses ALL of the image to form the video.
Your workflow is editing DV clips and making DVDs, so iMovie 06 is better suited. Your movie will arrive at iDVD in DV format, which is an ideal match for making a DVD: same resolution, same pixels aspect ratio, and original quality. If you share your movie from iMovie 09, it gets re-rendered at 640x480 or less, and then iDVD upscales it back to 720x480. The end result is obviously not as good.
iMovie 06 and iDVD 09 is a "lossless" combination.
iMovie 09 is a wonderful program assuming that you're using it for what it was designed to do, assemble videos to share on the Internet.
Some of the movies are bit too large to record to a DVD
A Dual layer DVD will hold about 3 Hrs and 45 mins (7.5GB) of full quality video.