Fat32 is the [B]file system [/B]that was used when the hard drive was formatted. The type of files that the dvr saves when it records video are probably mpeg2 or complete dvd-video (which uses mpeg2).
Pixellation on playback is normally caused by media problems. Verbatim with AZO dye is a good choice. Taiyo Yuden is another good choice for blank disks, though it is hard to find at local shops…look for JVC brand. Or just order Taiyo Yuden online at rima.com, supermediastore.com, etc. Sony brand dvds are usually a good substitute if you cannot find the first two.
Do you have control of the speed at which the dvds burn in the recorder? If so, try burning a bit slower than max speed.