Thanks for your response and that seems to agree with my position. However, this is what my friend says:
"If you have an analog (vhs) wave form e.g. audio wave from a vhs tape in order to maintain the entire waveform you're going to have to reference the waveform more than if the audio source was already digital (dvd) because its already a digital bit stream. In an analog waveform, in order to preserve the crest and rarefactions and all the data in between then you would have to have more bits per cycle (hz) than in a digital wave. That's why mp3 compression is lossy, because when you go to a digital wave form from an analog wave some of the original wave form is lost. So, I would assume a similar effect would happen when you're encoding video or at least with the audio of the video which would take up more space."
My friend also went on to disagree with your post, by saying that "Because dvd is already of a high source quality, you can get away with a lower bit rate and still preserve the quality (reasonably speaking). However, with vhs, since the source quality is far lower than dvd, in order to make that at least watchable you must use a higher bitrate -than dvd- to achieve a quality close to the source.
I think my friend is fundamentally wrong, though I dont know that much about the science behind audio/video - he has a background in audio ...... Thanks for your insight.