Don't use H.264 for SD DVD. You're compressing your file a lot (and for a long time) and then it takes a longtime to decode and then is compressed to MPEG-2! Not a good workflow.
How did you ensure that the change in the (DVDSP) Prefs stuck? Are you using encode on import or on build?
You'll be better off Encoding to m2v (mpeg-2) and AC3 (dolby digital) out of Compressor then using those in DVDSP.