DVDSP only allows you to use components of a DVD that it can use. It encodes nothing, it just takes already encoded components and puts them together in the order you tell it.
In order to use an edited movie from iMovie, the video has to be encoded into MPEG2, and the audio needs to be AIFF or Dolby Digital.
I'm not on my Mac with iMovie and DVDSP at the moment, but all I can tell you is that you have to either export the audio/video from iMovie, OR, there's an iMovie "Export for DVD" option. Choose that, save the .mov file, open it in Quicktime (Pro!), and THEN the options for exporting the audio/video will be made available to you so long as the Mac you're using has DVD Studio Pro on it. DVDSP's installation adds an MPEG2 export add-on for Quicktime.
Mike
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