Todd:
I'm not sure where you've seen dragging original footage straight from your camera to the FCP timeline. That's definitely not recommended. I'm not sure how you did the editing directly from your orignal H.264 clips without rendering the timeline. Maybe you've got a high-horsepower Mac?
Anyway there are two approaches that you will normally see people use:
1) Log and Transfer: With this method, you mount your SD card on the Mac, and look at thumbnails of all your clips. You can select those that you wish to keep and which to ignore. Then you tell Final Cut Pro to transcode the selected clips to ProRes 422. They will end up in a bin in your project.
See:
http://www.learn.usa.canon.com/resources/articles/2011/eosmovie_pulginarticle.shtml?categoryId=124
and:
http://www.patience.tv/blog_files/6996080f6dd90fcf20a65734df6f1a22-4.php
and just google "canon dslr final cut pro workflow" to find many more discussions and tutorials. Taking this approach also adds timecode to your clips which is important for helping Final Cut Pro to keep track of how they are used in sequences and if you ever have to go back and edit an old project.
2) Use Compressor to Convert Clips to Prores: As described in the post above, you can also just dump all the .MOV files from the camera into a batch in Compressor and select the ProRes LT preset and submit the batch. For a quick and dirty tutorial on this approach see:
http://youtu.be/k7mKpKRLfMI
CREATING MOVIES FOR DVDs: Generally you should do as the poster above stated, which is to create a Quicktime movie file and then use Compressor to convert that to the MPEG-2 format you'll need for DVD Studio Pro. The "Send to Compressor" command should have been removed from FCP a long time ago because it's notoriously unreliable. If you'd rather use iDVD, then you should be able to open that same Quicktime movie file directly in iDVD - don't bother to use Compressor; iDVD does it's own conversion to the necessary files for DVD output. However, you should know that you are seriously wasting your time shooting on a 7D if you take this approach because iDVD will not create very good quality encoding on the DVDs.
AUDIO FILES: Yes, you can still use your own audio recordings on the timeline if you convert to ProRes using the workflows above. Transcoding the audio doesn't add much overhead, so it's not going to be a waste to still transfer that along with the original footage, and it gives you a reference for sync'ing the master audio.
Overall, I strongly recommend taking a little time to better understand the Final Cut Studio suite and invest in a few books or video tutorials (see
http://www.larryjordan.biz/app_bin/Store/catalog/index.php or lynda.com as starting points.)
--JV
Message was edited by: jvolino