Only the clips in the sceneline/Timeline view will be burnt to the DVD.
Sorry, I am not too sure what your problem is. From what I have understood, you have created subclips in the sceneline from the larger clips in your organizer... so cut sections out of the larger clips to use in your project. With a largish project like this I would advise you to work in the Timeline mode. You will see things much more clearly, you will be able to move clips around, add effects and transitions, see the flow of the movie and see it all more clearly.
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I agree completely. What you see now are "instances" of the edited pieces from your large files. Those source files have not been physically altered, but you have representations of the pieces. In Timeline, you can do two things, that might help you see things better: 1.) adjust the Clip View. There are basically three choices to consider: show all frames, show first frame only and show first and last frame only. 2.) You can also increase the height of the Video Track View by dragging it up. Place the cursor over the light line at the top of the Video Track in Timeline Mode. When the cursor turns into a double arrow, pointing up and down, with a bar, you can click-drag to make your Video Track taller. Might take a bit to get that double-arrow cursor, depending on your monitor's size and resolution, but it is there. One note: if you choose show all frames, your video display performance might take a hit. I usually go with show first and last frame.
Do not delete your source files, as they are still linked and what you see is still dependant on them. If you try to delete them from your Project Panel, PE *should* warn you that they are in use and that all instances of them will also be deleted.
In PrPro, you can create physical Sub-clips of these smaller Clips. However, until CS4, there was a major performance hit, when using Sub-clips. Unless one absolutely needs Sub-clips, working with the instances is perfectly fine, and the way it's done 99% of the time.