In theory, you are suppose to be able to start with the Blu-ray project, then after you build it, simply change the output to DVD in the build settings, and proceed to build a DVD.
Unfortunately this method of creating a DVD produces horrible quality results with the downscaling. Not only will the quality of your main video be garbage, but so will the button highlights and motion backgrounds.
I think you will be much more pleased with the results if you create two separate Encore projects, using separate HD and SD assets which have been prepared outside of Encore, using high quality downscalers.
Jon Geddes
http://www.precomposed.com