If your footage is already progressive, then deinterlacing it will degrade and hurt your image badly.
The real way to improve your footage is to set up the finest quality tube television you can possibly afford, calibrate it with FCP color bars (the manual tells you how), and the use the Three Way Color Correction tool while monitoring on the TV. And please do not use the composite cable.
You can also try some "look" filters for changing the "character" of the video, like glows and tints and gradients, but this is not really for "quality" as much as " a look".
Thats it. Make it perfect BEFORE compressing for DVD. And of course you are getting "sd quality". Your camera is an SD (Standard Definition) camera.
-Christopher