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DVD standard (mpeg2 / NTSC) is always 720x480. The shape of the pixel (Pixel Aspect Ratio) will determine anamporhic (widescreen) or standard playback. In short, you're going to lose quality going from HD to DVD. No way around it.
You can probably use Adobe Media Encoder out of Premiere to encode to NTSC DV Widescreen using VBR 2 pass encoding (set the average bitrate to ~7 and the peak to no more than ~9) unless you're using AE for anything else then downsizing the footage. Are you using CS5?
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I'm not sure I fully understand your issues. For all intents and purposes, you could just DL import the Premiere Pro project into Encore and let it transcode there as you could let the PPro project be opened in AME. Likewise, I don't quite get why your output from Premiere looks considerably worse than from AE. After all, everything is done via AME, even if the programs give access to different features sets of the underlying core based on their own limitations (AE limiting VBR to one pass being one of them). So in the end, it really shouldn't matter and it sounds like you are using some weird settings from Premiere. Similarly, Encore can handle square pixel footage equivalent sizes just fine, as long as they fit the aspect ratio logic within the same version level, so yes, 872x486 in CS4 or CS5 would be correct. You get the vertical cropping, though, so for maximum control you may still want to manually encode to the anamorphic 720x480 res, but you should do that just once. There really is no need for using multiple scaling and conversion steps such as you suggested, unless you use a specific scaling or field mangling procedure that would require AE...
I understand that dropping resolution means a loss in detail and quality. That said it's been well documented by several sources that not all downsampling algorithms are created equal.
I have seen first hand for example that I get better quality HD->SD video when I use the virtual dub method described in the above tutorial. That's great when I want to just take an entire clip and render it out at a lower resolution. When I want to do that with a series of clips at various resolutions (or multiple clips that have been scaled in a sequence for example) the virtual dub route is just too much mucking around.
I am using premiere pro CS5. and I have heard that the GPU acceleration and "maximum render quality" settings allow it to use better algorithms.
Adobe talks about it as well:
To be clear I'm not looking for a silver bullet 100% quality conversion. That's impossible. What I am looking for is the best method to take what I have and get it onto DVD while introducing the *least* amount of additional quality loss possible since the source material isn't the best to begin with.
I also want to steer clear of anything that will cause further cropping or distort the aspect ratio of the video.
Mylenium> Thanks for confirming that the higher res settings will be subject to cropping on the output. That's out. Now the anamorphic is going to look squished until played back on a DVD player right?