Since you're using DV, your sequence is likely interlaced. The PSD, on the other hand, is progressive--or more specifically, has no field order. When you put a non-interlaced piece of media into an interlaced sequence, it's automatically (and unavoidably) interlaced.
Simultaneously, you're probably gauging this by looking at your computer monitor--a progressive display. When you render the sequence, assuming your preview codec is set up to DV, your rendered previews are also interlaced. Displaying interlaced video on a progressive display will usually result in the appearance of interlacing artifacts that may or may not be an issue once it comes time to export. It's not an issue if you're encoding to an interlaced output and displaying on an interlaced device. It's sort of an issue if you're encoding to a progressive output and displaying on a progressive device--but not too big of an issue since Premiere Pro will automatically deinterlace on export. The quality of that is determined by whether you're using hardware MPE or the Maximum Render Quality option on export.
How much this is an issue really depends on what your intended output for the finished video is.
Are you still there? Your reply gave me some help me with this question - http://forums.adobe.com/thread/946071.
My settings had by default Intel IYUV Codec? Is this correct or should it be DV PAL? I have a splitted screen and chose a frame size of 1100x720.