Ben,
There are several things you might do to improve an MPEG2 encode; a lot depends on the content (movement, details, lighting, graphics, etc) so what works great for one project may not do much of anything for another.
One step that can make a difference in going from HD to SD resolution is to turn on Frame Controls and set the Resize Filter to Best.
As for adjusting bit rates, I doubt you would see much difference in going much above 7 Mbps. But what you might try (on a section of challenging material) is comparing CBR to VBR.
Consider first transcoding from HDV to Pro Res 442 and then doing the MPEG2 encode. I've had some HDV>DVD projects that have gone without a hitch…but also enough have not so that I just routinely convert everything to Pro Res. Again, I'd try a short section to keep the testing times down.
Finally, although there are amazing looking DVD's, people are often disappointed when they see their gorgeous high def movie in the highly compressed SD format. If Blu-Ray is an option, give that a try. It can be done from within Compressor – albeit with a basic menu. Or, if the movie is under about 30 minutes, you could burn an AVCHD disk with a regular optical drive which will play in most Blu Ray players.
Good luck.
Russ