I am afraid that what you said does not make much sense to me. You have a still at 640X480 and you size it to fit into the frame. The you export to DV AVI and you do not like the output. Why? What is wrong with it?
Where did the small picture come from? Is it resized down from something?
Can we see 5 seconds of your AVI? Just use https://www.yousendit.com to send me 5 seconds of AVI. And also send the still. My email address is available on my web site.
The first thing I did was to bring the pic into Photoshop and apply the 1.2 PAR just to see what it would look like. Then I watched the AVI in a couple of players. Then in Premiere Pro. It looks like there is some serious quality loss.
So try this: Unlock the ratio in Photoshop and change the still to 720X480 using 1.2PAR. Use that in Premiere Pro 1.5 and you will find some improvement.
Building an MPEG2-DVD file will not use the preview files, so it will not have some orf thr same DV codec problems. I just use 7Mbps High Quality CBR for anything less than one hour.
WMV works fine if you just want to play it on a PC.
The reason you get that message is that you have a stereo master. The program is complaining that it doesn’t know how to upmix to 5.1 for you. So import the main sequence into a new sequence with a 5.1 Master audio track. Then adjust the adio that you recorded on multiple mics…. but you probably didn’t…. So use Stereo instead of 5.1
Remember that the presets are just presets. You can change them to suit your needs.