DVD video is not M2T AVC high-def video. DVD video (at least the kind that can be played on a DVD player) is made up of VOB files, which are standard definition MPEGs.
When you burn an AVCHD-DVD, you are essentially using a DVD disc as a smaller BluRay disc. The video you are putting on the DVD disc is a BluRay video file. You're just using a DVD disc (which is cheaper than a BluRay disc but can only hold a fraction of the data).
So you can not burn an ISO of an AVCHD video to a DVD and get a DVD disc that can be played on a DVD player.
Are there more than two file extensions for an AVCHD video, e.g. MTS & M2TS?
If yes, then what are they and is one version better over another?
MTS, M2T and M2TS files are the same basic -- a high-def video. However, these files can be made up of a number of codecs (MPEG2, AVC, etc.).