B yes, if you must export in AVI better is uncompressed
It will depend on your source footage (mainly rapid subject, or camera motion), and on the Duration of your Timeline/Sequence. If you have plenty of room on your DVD-Video disc, you can do the bit-budgeting and then Export at the highest bit-rate (up to about 8mb/s), use 2-pass VBR and fit your resulting MPEG-2 onto the disc. I'd still do Export as Video-only and Audio-only (PCM/WAV, or DVD-compliant AC3), rather than as a single muxed file, and Import the MPEG as a Timeline into Encore, and the WAV as an Asset. Just drag the WAV from the Project Panel to the appropriate Timeline and then do your navigation - done. If you have a loner Duration (or multiple Sequences, likely to fill up the disc), do get a bit-rate calculator and remember, the bit-rate will be for both the Audio & the Video combined. If you need a higher bit-rate for your Video, you can make a bit more room by using DD AC3, instead of PCM/WAV - might not be a lot, but might get you a few more b/s in your Transcode.
I do not recall if Encore 1.5 had the Automatic Transcode setting, but in Encore 2.0, I use that most of the time. I just Export my PrPro Timeline as a DV-AVI Type II (Video-only), and the Audio-only AC3 (I do DD 5.1 SS for most Projects), and follow the steps above. I find that the automatic setting will do a wonderful job in all but the most action-filled Sequences. Even then, you can pass on Automatic and set the Transcode manually.
Also, some people feel that there are other MPEG-2 encoders, that surpass the included MainConcept one. Most of these are stand-alone encoders, and in that case, I'd look into one that could handle the Lagarith Lossless CODEC, using that as an intermediate file.