To be honest I haven't been involved in creating DVDs for a long while now... and especially not from high quality HD footage like 1080i. Not sure I can be much help...
I assume you've checked the de-interlacing options upon export?
If creating an SD sequence in FCP works then I'd go with that option. But, I'm surprised that the quality of the DVD Studio down convert to DVD spec provides such bad results. Have you tried using Compressor? There are specific presets to for DVD-video there.