I've used this program forever, but I never see anybody else mention it. It's free, for now, so grab it quick. All you do is choose the avi or divx file, tell it the output location, and in about an hour you have a VIDEO_TS folder ready for burning without any visible quality drop that I have ever noticed. I have a 52" DLP HD and I have no complaints on the quality whatsoever.

Once you have your VIDEO_TS foled, burn it to dvd, and add any DVD-ROM content you'd like.

Here's the link:

Direct Download

Detailed program Info