DVD files are compressed with mpeg2. How do you want to edit? You get the best quality by not reencode the original streams (just cutting and joining, no rendering). If that is what you want to do I suggest editing with MPEG2Scnhitt or Cuttermaran.
If you want to render transitions then you should use an editor that is smart rendering, which means it will only reencode the parts you change and leave as much of the originals as possible. Not sure if Premiere can do this with mpeg2. You can use an mpeg2-editor like Womble MPEG2VCR or M2-Edit Pro. If you must convert it to avi before editing I suggest a lossless format like huffyuv, but then everything must be reencoded to mpeg2 as a final step.