Hi Jamsa and welcome to the forum.
At what point does the pixelation first become visable?
If you plug cam into TV and it is visable then the pixalation is obviously being created by the cam and upgrading this should resolve the problem.
If the pixelation only occurs after creating the DVD disk then the chances are that it is down to the MPEG encoding and that will then need to be upgraded.
In theory your PC specs are good enough for NLE, but I have seen many reviews of Pinnacle Studio 8 that say its encoding is very poor, so it could well be down to the software alone.
For semi pro editing you are looking at programmes such as Adobe Premiere or Sony Vegus with separate encoding packages such as Ulead DVD Workshop. If you are going into this to make money then I suggest you get a subscription to Computer Video mag as this is the only dedicated magazine in the UK for NLE. Also take a look at their forums at
www.computervideo.net
Mark.