Hi zebadee,
You're not expecting too much... the problem is playing SD video files on (very

) huge TV screen always add edge effects.
That can be unbelievable, but if you try to play the DVD you created with Blu-ray converter on old TV screen will give a best quality!
The problem is the DVD width resolution is 720 but your TV native screen width is 1920. 1920/720 (like 1080/576 for the height) is not an integer value, and resize process done by your Blu-ray player or/and TV screen add very weird effects.
I think converting with a bigger output size (DVD9) will not fix your problem. Our DVD encoding engine is really optimized, and converting movies like AVATAR (less than 3 hours) will give good results with DVD5.
Like you said, the only way to fix this issue is by converting with same output resolution as your native screen. (1920x1080)
Maybe you can try by using Blu-ray converter HD output profile like generic video/1080p or PS3 HD 1080p... but will result by bigger output files.
We are working on x264 encoder with 1080p resolution (using AVCHD, AVI and MKV containers) and this type of output will be the best for your case.
I will inform you when a version with this type of output is available, be sure you will be happy to see the result
Thank you to have provided your test results!