I could swear I responded to your thread at Cow, but I see I only thought it and did not do it!
I suggest you put an Encore library template into a project and use "edit in photoshop" to see how that works.
PAR correction is on for me, and I think that is the default. That is logical, since standard monitor uses square pixels.
I think you are better off keeping the menu at the DVD resolution you are going to use. I don't find a problem working at that resolution.
Keep in mind that ppi is meaningless in video work. It is all about the pixels and par.