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Found a solution for anyone interested or in need. I started learning to use DVD Studio Pro 4 but when the problems started I went a simpler route - iDVD. The solution I found should work on DSP4 as well as iDVD.
If I put my 480x360 QT into iDVD it came out horrible. Text and graphics were jaggy and ugly. The reason had to do with the processing that the DVD software does to the file. So this time, when I rendered out of AE, I used the settings to Stretch the file to 720x480. When I burned the resulting QT file with iDVD - it came out much, much better. At least good enough for me call it finished. I hope that helps someone out there.
As I said - the resulting animation was sharper and closer to the 480x360 QT I watched on my desktop. But it could be better. For one thing, the iDVD version is so bright! Is that because of the TV I'm watching on? I don't know of any way to get better results but I hope someone with more experience drops in on this thread.
Well, SWF is full head-on RGB and does not contain color profiles or Gamma corrections (it's all done by Flash Player) and without any special prerequisites, conversions may shift colors. Therefore, when rendering from AE, you may be able to improve matters by force-assigning color profiles to your source and to the resulting output. There will always be minor differences, though, due to how Flash works. the slight "softness" is normal - rasterization and filtering in AE are different from Flash's own antialiasing, but in general you will want that to avoid extensive flickering. Just make sure to use continuous rasterization throughout the whole chain. As for your other concerns - there is no perfect way. If you had CS4, you'd export an image sequence from Flash base on the original FLA project or by letting Flash play the SWF on its stage. that's the only way to control everything. If you are regularly doing such things, this would be one good reason to upgrade, even more so, as it's the only way to figure in script-driven content and complex nested Flash symbols.