Not sure of the experience (years) of the original poster, but here is some history for his benefit.
In non-DV based editors, you used to capture your raw footage at a lesser or off-line quality. For example in Media 100 you can capture a whole 1 hour tape and it only takes up 1 gig. It is low quality, 1 field, but ok for an offline edit. Then when you are ready for the final edit, you batch digitize at full resolution, or up to 300kb/frame.
Well since DV takes up a modest amount of space, and now that you can get a 500gig drive for less than say a Lexus, space is not a problem.
Final delivery on DVD, DIVX, VCD, PSP etc is always compressed down to what will fit on a piece of media, thus small sizes with relatively decent quality. But generally you do not want to edit one of these delivery formats such as MPEG, DIVX etc. While youcan do, it is not the current way to do things.
This of course may change, as we used to think 3/4″ would be around forever!
Make sense?
Mike