The thing to remember is... what goes in, comes out... but less than what went in. What was the resolution of the video source (how large was the file)? What was the file format?
Windows movie maker is really only meant to create videos for computer use, email and such. It's not meant to create high resolution files. If you want decent resolution output, you first need a good video source, then a good program to convert the file to a source which is DVD compliant, then a program to encode/author the video to DVD. Windows movie maker tries to do this all at once and is why the output lacks. I know of no free programs that can do video effectively. However, there are a lot of trial software you can experiment with before buying... but you first need to know what needs to be done to the source video.
If you can tell me what the file format is of your source video, perhaps I can help you out a little more or point you somewhere.