MPEG 2 is inherently better quality than MPEG 1, but the bigger difference is the bitrate used. The higher the bitrate, the better quality you'll get with either MPEG 1 or MPEG 2. At identical bitrates that are high enough, it's probably pretty hard to tell the difference between the them.
DVD video = MPEG 2, for the most part. It's the standard format for DVDs. Some newer players will play data discs with MPEG 1, MPEG 2, and DivX files, but not all will. Actually not many in the western hemisphere will handle DivX. But, if you want to make a real DVD video disk with menues that autoplays in standard DVD players, then MPEG 2 is your only choice.
Many here talk about tempgne(sp) . I was thinking that Vegas Video + DVD ( I believe has the mpeg decoder) is this a better way to go, plus it has the dvd authoring.
What is your opinion regarding dvd authoring and mpeg 2 decoding package?
tempgne + Dvdlab or Vegas Video + DVD ?
I just tried some sample rendering to MPEG-2 with the Main Concept encoder built in to Movie Studio, using the NTSC DVD template. It looked darned good to me! I wouldn't bother looking elsewhere unless you want to spend lots of money to upgrade to all the other functions that Vegas offers.
If you have a look round on the web you'll find loads of comparisons of different MPEG encoders. They've all got their champions, but there's no clear winner. I agree with Chienworks - stick with MS' built in encoder.