MPEG544x480 ---NERO---> VCD 352x240
會有馬賽克是正常的啊 .....
The reasons are :
[1] Resolution is down !!
[2] Nero is a bad tool also to do this job .

Solution for you :
[1] MPEG544x480 ---TMPGEnc---> DVD 720x480
[2] Use TMPGEnc to do the job

And finally, ask you a question :
觀看DVD的電視是幾吋的 ?