I'm assuming both clips are widescreen.
Create a new project for your HD clip using the appropriate project setting (no red lines across the timeline when you first import the clip). Then use Share on this project to a 720x480 widescreen DV output. Add the output from this share to your 720x480 project and both should be full widescreen.
Note that as your target output is DVD you inevitably lose some sharpness from the HD clip because DVD is only 720x480 NTSC.
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