Hi -
Toast is going to encode the video that you supply back into AVCHD to make the "Blu-Ray". In the same way AVCHD video files increase in size when you import them into FCE to edit, they are reduced in size when they are converted back to AVCHD for the Toast Blu-Ray encode. This is why your 26 gig file is showing up as a 7+ gig encode, the codec of the file is being converted to a more compressed format.
I would not set the bit rates to max, as that forces the player to work as hard as possible to play the disk. I would leave the bit rate settings and qualities to the default position.
If you want to do a test, export a 10 minute section of your timeline, and use Toast to burn a "Blu-Ray" on a regular red laser DVD.
Once this burn in done, you can judge the quality of the encode/burn bit rates and qualities, and most importantly, will allow you to verify that your set top Blu Ray player will actually play a home made Blu- Ray disc. There is no guarantee that the set top box will play the disc, particularly if it is an older model.
If the using the default bit rates creates a Blu-Ray of acceptable quality, but the resultant file size is too large to fit on a DVD, then you might want to look at a single layer Blu-Ray Disc that has 25 gigs of storage.
MtD