it's going to be a lot harder than you think.
the first step you need to do is decryption. This will be technically illegal, even if you own the dvd's, I think. My favorite program is DVDExtractor (OS 9, not classic). Options for OS X are OSEx and Extractor.
The next step is editing. iMovie only opens DV video. DV is a codec as well as a file format. You can decode your mpeg2 files (be they in m2v or vob format) with MediaPipe, MacMPEG2Decoder or MacMPEG2Converter. The audio can be decoded by MediaPipe, macAC3Decoder or bd4go. You'll probably need to decode the mpeg2's to DV and the ac3 (or pcm depending on the DVD) to aiff, and import both into iMovie, then sync and do your editing. Converting will take very long and very much hard disk space. DV video is about 250 MB per minute, and aiff audio is about 10 MB per second.
burning to iDVD from iMovie is easy, but keep in mind that iDVD can only burn up to 90 minutes of video, or 60 minutes at full quality
good luck