What "background"? What exactly are you talking about?
Regarding your footage: is it 4:3 DV, or widescreen DV? If it's widescreen, make sure your "project properties" from the File menu is using the correct template before you export out.
There are other people who know the specifics of proper image size and so forth much better than me, but maybe I can help. Based on what I'm reading, it sounds like you might want to mess with "maintain aspect ratio". open "pan/crop" on the image, set "maintain aspect ratio" to off (I believe), and this may solve the problem by "stretching" the image to fill the screen.
I remember hearing something about images should be 655 x [something] rather than 720 x 480, which might be why your image ends up being "shrunk" down.