Of course you'll lose quality. You're scaling down from a 1024x768 video to whatever DVD size is, and then you're drawing it on a telly with 525 lines vertically (haha, NTSC). It's going to look a lot worse. Have you never noticed that the average PC monitor is vastly superior to the average telly?
You have me curious now. What does the DVD-Video spec. say about resolution?
The highest resolution you can make an NTSC DVD-Video is 720x480. Then you've got the crappy 525 lines on the actual telly, so it'll look crap, really.