Binnz7dw,
A raw (uncompressed) AVI file has more detail than an MPEG2 or MPEG4. When shooting SD, always capture to AVI, to save as much visual detail as possible. Of course, when you make a movie DVD, the final rendering will be to MPEG 2, but that's not so bad, since the video only goes through that one lossy compression.
I think an HDV camcorder saves video to tape in a special version of the MPEG4 format. If you can capture hi def video from an HDV camcorder to a hi def AVI file on your computer, I would think that is the way to go. (Disclaimer: I haven't done hi def yet, so an experienced HDV videographer might have a better suggestion for your hi def stuff. ;-) )
Ken Hull