Lots of solutions to your archiving problem, the real problem is which is best for you:
Tape backup - high capacity storage, can be internal or external drive - I wouldn't reccommend this as a long term storage option. tapes are too fragile a medium to trust to time and storage conditions. Its great for redundant/repititious backup routines where you cycle tapes all the time.
Add an extra harddrive to your system - one of the 300+gig drives, maybe 2. Problem is, you will still run out of space if you keep adding (cause you just LOVE video editing that much).
Invest in a removable harddrive system. Kind of expensive, and can be hard to get insertable harddrives as time goes on.
If you are competent with PC hardware you can buy last years model high quality harddrives fairly cheaply, hook tham to your data chain and backup/remove. Although the data retention is superior to tape the drives are subject to shock damage and care must still be taken. ***This is my personal favortite method, combining high capacity, economics, and ease of data accessability and transfer.***
Burn to DVD - you already know the limitations of that.
Set up a new PC full of drives, or even a server for high capacity storage and shared access. Oh Ya, that one wont be expensive....
you can up the compression, lower the resolution on your output videos **** I STRONGLY urge against this****
As for your Pinnacle settings, im no expert with that software, but always use the most uncompressed opotions. It does create larger AVI's but you will not be unsatisfied with quality when you go back to them. Sorry I can't speak to your codec selections, not knowing what your installed codecs are.
My System Specs:
Cameras: 2 x Canon XL1s
Computer: Dual Intel Xeon 2.8Ghz processors (hyperthreaded) - Intel SE7505VB2 mother board - 2 Gb PC2100 RAM kingston -Adaptec FireConnect 4300 -2xseagate 10K scsi hdd 150G ea -2xseagate 7200 ide hdd 200G ea - Plextor PX-708A DVD burner - ATi Raedon 9800Pro video with Dual SUN 21\" monitors - Sound Blaster Platinum live!
Software: Windows XP Pro with SP2 - Pyro Pro (adobe\'s premier pro, encore DVD, and audition bundle)