As to the mpeg component not being avalible in QT7 your probably right, now that you mention it I seem to remember the option being avalible in QT6 pro.
As to why your compression to MPEG 2 looks try this:
Try using compression markers, to keyframe compression quality at those points where you seem to be losing it. (you can do this in compressor or final cut)
Your bit rate may have some thing to do with the problem, but I would imagine it is the I-frame order on the footage you aren’t getting the quality frames where you need them.
The other thing is it could be because you work in DV, which is already heavily compressed. Personally I work with uncompressed footage so I never run into this problem.
Hope this helps
Simon Carlson-Thies