OK, your original file is very good quality. What are you capturing at in Studio? I was never able to capture in Studio so I was using Showbiz, and I had to set that at the very highest capture rate to get decent quality MPEG2 files.
What could also be going on here is high compression... like if you are burning a long project, Pinnacle has to compress that video to fit on a DVD. I found Pinnacle's compression to be fairly poor.
As far as software goes, if you're willing to invest the time to learn it, you can find previous versions of Adobe Premier on Ebay for under $100. Make sure you find one that says "brand new, unopened" etc... I got a retail copy of Premiere 6.0, unopened, for $85. You can capture and edit in that, then write an image file that can be burned with Nero (or whatever burning software you have), or you can get a standalone authoring tool.
Also, a good site to look at is: www.digitalfaq.com