Need to get some points straight here:
Point 1 - Separation of ProceduresEncoding (1) and Burning (2) of a DVD for viewing on a set top box, from your source material, are two separate procedures. As procedures or functions, they CAN appear to be combined, but they don't need to be. I can burn a DATA DVD without needing to prepare anything. The DVD platter is just a receptacle to hold my DATA, like a high capacity floppy disc. I can "prepare" a video DVD without the need to burn. Yes of course I can later decide to then burn it, but preparation (encoding/authoring) and burning are not the same procedure. It can appear that they are, but they aren't combined.
As a result of this separation of function we can prepare video and audio content away from burning. And this is what I do.
Point 2 - Making A Choice of Encoding Procedures
From within Vegas I can decide to:
a) produce a combined Video and Audio MPEG encode
b) a separated out video and audio encode
Mostly now I choose the second option. To do this I prepare video content by using the MPEG2 encoding/rendering video only (there is a template ready to go in Vegas) and repeat the process for audio, but this time use the AC-3 encoder/render (again, there is a template ready to go within Vegas). NB: I don't remove the video from the timeline, I just select the AC-3 template from within Vegas. (I need to keep the same name for the video and the audio and render them to the same folder - MyWork.mpg + MyWork.ac3 - of course you can call it what you like! I just used MyWork as an example)
Point 3 - Quality & Decoding at the Tellie!
What kind of tellie are you viewer the DVD-player's output on? I have a 40" SONY BRAVIA, and I use a SONY DVD player which decodes and upscales through an HDMI and through to the BRAVIA LCD screen and the result is amazing - and this with SD content too. The point I am making here is that the player>cable>screen decode/transit need to be fairly compared to the PC>Screen result. There maybe NOTHING wrong with your DVD encode, but it is your process from the player to screen that may need to be investigated. I've needed to re-view my shop bought DVDs with this upscaling player! The results are truly awesome, and inch for inch of resolution can often surpass my PC>screen results too. This is with my own shot SD work, prepared and burnt through Vegas to DVDA and delivered on a SD DVD platter.
You've raised some good questions. I hope this helps to assist you in answering your enquiry regarding the need to remove the video from the timeline, along with an invitation to look more carefully at your final process to viewing your work on your TV.