DV newbie seeks advice!

You asked a whole bunch of questions there, but let me share my experience.
Firstly, i find that some people expect too much from VCD. It's not a perfect standard, however i find that it very often looks much better being played through a DVD player and TV, than it does on my PC, so burn a VCD and try it on a TV.
Second, try to make a VCD from another source to check that it's not a fault of your encoding system.
Third, try to use different MPEG1 encoders. I found the Panasonic one to be the best for me, but costs money.
Fourth, you dont have to stick to VCD, you can also make SuperVCD that uses a different way of encoding and (usually) looks better. Or sometimes worse but in different ways. Neither of these though is really suitable for 'archiving' (ie keeping forever), and DVD is your only real solution.
HOWEVER what you can do, is make a DVD compliant MPEG2 file (use bbMPEG encoder, its free), and just keep the file sizes to under 700 MB (which is around 10 minutes worth or something), and just burn the file direct to a CD. It wont play at all on a DVD player, but it'll be safe for archive purposes until the day comes that DVD burners are affordable (near, oh so near for me now!!!) then you can make a playable DVD.

How's that?? You can tell i've already had ideas about this...

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I have seen DVD r+w PC-based writers here in the UK for 250 pounds, and even recently standalone DVD writers (to sit under your TV) for 500 pounds, so prices are plummeting. Certainly by Christmas i'm sure things will be even better.

As for converting to MPEG2 and then converting to MPEG1 - DONT!!! You'll lose even more quality. Always always start from the source if at all possible, and only encode into a compressed product (ie an MPEG 1 film) at the very end of the process of editing or whatever.

And finally, you may have a common misconception as for standards.
MPEG2 is a standard. its fixed, wont change, and is the encoding method used in DVD videos. So that is the standard. You encode into MPEG2, and it'll stand the test of time as much as any other standard does.
What people often dont understand is that a DVD (the shiny disc) is merely a disc. Its not a standard of video. The video standard (the MPEG2 file that is structured in a particular way) is placed onto a DVD merely because DVDs hold alot of information. So whether you chose DVD r-w, r+w or RAM, the MPEG2 file on it will remain valid forever.

Have i been as clear as mud?

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