yes you can encode in HD, I'm using AVID Xpress HD for editing and compression to 1920x1080 30p MPEG-2 or 1920x1080 30p MPEG-4 AVC, you can also use Premier Pro to export to WMVHD.
Even downsampling to 720x480 16:9 progressive DVD will look great and maximize the quality you can get out of a DVD.
peace, chris