AVCHD or MP4 HD using IMovie and IDVD

Okay,
I am new to Macs and like them alot. I transfered from PC to Mac mainly for IMovie and IDVD. Here is my issue:

I use a Sony TX7 Digital Camera as my camcorder. It creates MTS files which I have saved on my desktop. IMovie does not recognize these files which I already understand. I know that IMovie imports directly from the camera itself but still changes the format to AIC. What I am trying to accomplish in the future is the ability to create the best quality HD movies to burn to standard DVDs usin IDVD. I know next to nothing about the whole process of IMovie and IDVD. My main concern is how I should be recording video on my camera. Obviously AVCHD needs to be converted but I have know idea the exact settings I should convert it to in order to keep the majority of the quality. Should I just record in MP4 at 720p? My TV is 720p and I am not looking for the best HD ever. I am just looking for HD in 720p. How can I retain this quality using IMovie and IDVD? I have MTS files on my desktop that I tried converting and the quality is okay, but I would rather not have to convert files in the future. I don't want to copy the whole file structure each time I import my videos because I like to organize my videos in one folder by date. There has to be someone who has had success with this. I just want to produce great looking widescreen home videos using these two software programs. Then there is the whole other mess of what settings to use when importing into IMovie and exporting to IDVD. Can someone experienced with ILife explain this to me?

Thanks,
Matt