MPEG-2 and MPEG-2 DVD are the same in terms of encoding. Both are 100% full DVD compliant.
The MPEG-2 DVD unlocks PCM audio capture, which I don't really suggest anyway (can lead to problems). The MPEG-2 DVD also retains full resolution and inserts black filler on top of the overscan when recording cropped video. MPEG-2 would literally shorten the file by 20 pixels or so from each side. MPEG-2 DVD just covers that junk up, retains proper DVD MPEG resolution. Covering overscan results in better bitrate allocation. You should probably use the cropped feature. I made a small notation on this in my last update to the MPEG ATI guide. It's easy to miss apparently, as I've had this question a few times. This started back in ATI MMC 8.1 or so, not commonly known about.
I use MPEG-2 DVD myself for all TV recordings. I open the file in Womble MPEG-VCR when done capturing, and quickly cut out commercials and resave the file (takes about 1 minute to save new file). Then I author the DVD (10-15 min) and burn (15 more min at 4x). Real quick process.
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