It has been a while since I last used NeroVision, but I recall its default quality setting as "medium" (or something like that). What it means is a fairly low bitrate (heavy compression), which leads to poor quality. I remember adjusting the setting to "best" or "low compression" (or something like that), and the result was OK. Not great, but wasn't terrible.
Also, don't put more than 2 hours of video on a single layer 4.7GB DVD disc. The DVD-Video discs of Hollywood movies have more than 2 hours and still look good because they are usually double layer 8.5GB discs. Newer consumer burners can do this, but the only reliable media is the Verbatim DVD+R DL.
As for the audio, go with Dolby Digital (AC3). Linear PCM takes up too much space. MPEG-audio is poor quality.
There are many good applications out there for video editing and/or DVD authoring. I like Adobe Premiere Elements. If you get serious, you can easily move up to Adobe Premiere Pro. Both of these (and many others) have built-in encoders. However, in my opinion, the best software MPEG2 encoder is CinemaCraft. The basic version is only US$58, and it has the best combination of quality and speed.