Mini DV records video in its own uncompressed format. On a computer this is an avi file not an mpeg (note that mpeg refers to motion jpeg and that mpeg 1-4 refer to different compression standards) if you save the files into a format that a dvd player will be able to play then yes you are dropping the final quality back to that of a dvd camcorder. having said this when editing a mini dv camera records the video at a higher frames per second rate than a dvd camera and so gives you finer control over editing. so the basic improvement is in control and quality the trade off is in convenience.
A DVD camcorder doesn't actually use a dvd disc (the cameras would be to big) they use a mini dvd format that utilises a smaller disc, hence the reduction in recording time. these discs will play back in most dvd players though as unlike an LP both cd's and dvd's start playing from the inside of the disc.
you can always edit the video although in camera editing can only be carried out whilst you are recording not after the fact (regardless of whether the camera has a -r or rw disc in it) or have another camera connected and are transfering the footage from one camera to another and editing it as you transfer. so from a practical perspective it is far simpler to transfer your video footage to your computer for editing wether using a mini dv camera or a mini dvd camera.
In short if you plan to do ANY editing at all then a mini dv camera is going to suit your needs better, although if you don't think you will want to edit footage and simply want to watch back your home movies a mini dvd camera will save you time.



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