If you're creating a DVD, there's really no choice of codecs, since DVD video is a very specific and tightly constrained form of MPEG-2 video. MPEG-2 video is highly compressed and is not a high-definition format, so it is absolutely unavoidable that export to DVD video will cause some quality loss. This is true for even professionally created DVDs. There is an MPEG-2 DVD export preset in After Effects that you can choose from the Format menu in the Output Module Settings dialog box.
If, however, you're handing off your video as input to a larger work, and you need to create an intermediate file that preserves all detail for as long as possible in the post-production pipeline, then you should render and export using lossless encoding. My preference for creating losslessly compressed intermediate files from 8-bit-per-channel sources is the PNG video codec in a QuickTime (MOV) container.
See this FAQ entry (and the pages that it links to) for more information about compression and choosing settings for specific purposes:
You mentioned "jerky" output. See this FAQ entry for information about losslessly encoded movies and how they are not suited for playback:
Or perhaps the jerkiness is coming from the frame-rate mismatch between your 30fps source and 25fps composition. If so, then frame blending can help.
(1) Firstly whenever i output using any format, everything becomes slightly grey - ie the deep perfect black backgrounds go dark grey. How can i prevent this?
Not at all. It's inherent in using "broadcast safe" levels as required for any proper TV or DVD output. Has bben this way for the last 30 years.
(2) Whats the best way/format/file type to output for the best quality conversion from 30fps to 25fps. I notice that the video becomes slightly jerky when i ouput using a preset PAL output configuration.
Fields (or lack thereof) vs. progressive frames captured at the wrong framerate! Proper PAL output requires fields and in your casre the only way to halfway get there would be to eitehr re-capture your shots at double the framerate (50fps) or swallow the pill of retiming your footage with the Timewarp effect and rendering out with fields. Anotehr option might be 24p, but since it has never been properly standardized for DVD (Video), it may re-introduce the problems you are seeing when a DVD player is trying to conform it to 25fps again...