You don't need to have it on full processing to re-compress, you only need it on that if you are going to use filters.
When re-compressing you should have it set to fast recompress if possible so as to avoid a RGB conversion.
DV files are lossless when converting from DV, the actual format however is not which is why the filesizes are smaller than huffyuv.
Not sure what colourspace DV uses if it is YV12 then you could save some space by using a lossless YV12 codec rather than YUY2.
That all said, I am not sure what is up with premiere and your DV files. What is the fourCC of them? I guess you could also try frameserving with AVISynth? That way there would be no need to create large huffyuv files.