View this on a CRT or some other Video Display (DVD player connected to a plasma or LCD monitor). Do not use your computer monitor to troubleshoot interlacing issues.
If you burn your DVD or create your ts folder, you can open your movie in DVD Player and enable the deinterlace filter but you really should be looking at this with the correct monitor.
If you are creating this specifically for DVD I would suggest that you resize your HD footage to an SD frame size in Compressor then use the 2 SD sources in Final Cut to edit with. If your sequence settings are set for HD then you would essentially be scaling your SD video to an HD frame size then scaling back down to fit DVD 720 x 480. It’s a shame to be throwing all the HD quality away for a DVD (IMHO).
Let us know what you do to solve your issue.