The home made wmv movies are still at HD resolutions and for the most part have DD audio but you take a compressed mpegII video and then recompress it using a mpeg4 based codec you will lose picture quality, no question!
For the most part it seems people choose this just for the convienence of having a HD movie on a single layer DVD and are willing to sacrifice some image quality until such a time that HD-DVD and Blu-ray emerge.
Hand on heart I have two professional wmv DVD's and I do not rate them against the .ts mpegII captures that are floating around the internet. I do not know if this is a result of less than perfect source material but the codec or the encoding process doesn't seem a patch on the tried and trusted mpegII system. Having said that they do out perform an upconverted DVD source of the same movie