Can anyone tell me if there are any drawbacks to capturing DV as MPEG-2? If not, it takes up a lot less HD space, but if it's too good to be true it usually is. I figure if I'm going straight to DVD anyway, what harm could come of it?
Bottom line, I don't want to sacrifice picture quality.

Any advice would be appreciated.

I use MPG-2 for any DVD i plan to make. (as far as video goes.) But i usually use the DVREX MPG-2 format..not sure how your are making yours.

But yeah....to answer you question, i dont see anything wrong with MGP-2
to DVD...Ive made plenty and never ran into any problems

Does it in fact take up less hard drive space?

What if I need to downgrade it to MPG-1 later?

Can you export it to tape in the MPG-2 format?

If you want to EDIT the video and be able to send it back to tape, DV format is better.

If you just want to STORE video, MPEG2 is fine (it just doesn't edit well)

plus for DVD, MPG-2 format seems to be the defualt format.

Default??

It's more like the standard! It's required.
The only variable you got is the bitrate...9000KBPS(max)

If you convert DV to MPEG-2, can you then convert back to DV format without any loss of quality?

MPEG2 is compressed. I don't believe there is anyway to uncompress it without losing video quality.

you can still bring the bitrate up and keep image quality.