iMovie does not work with muxed MPEG-1 and MPEG-2 clips (and that's what you're trying to do) Apples Notes on this.
You'll need:
MPEG Streamclip (free) and the MPEG-2 Quicktime Playback Component from Apple.
Export DV-25 for a standard DV movie
Notes:
MPEG Streamclip author struggled with the Interlaced Scaling default a while back. He chose to default to Interlaced Scaling and put a notice to "Deselect it for progressive movies" (you did see that hint in the export dialog, didn't you!).
Progressive movies are a little bit sharper with Interlaced Scaling turned off (the difference is quite small, though). On the other hand, interlaced movies look TERRIBLE with Interlaced Scaling turned off if the vertical height is scaled!
...so there is a problem if the material contains interlaced AND progressive video. The compromise is to turn Interlaced Scaling on and accept that progressive material isn't as high quality as it could be. ...perfectionists will have to separate interlaced material from progressive and set Interlaced Scaling accordingly ;-)
MPEG Streamclip guide says this about Reinterlace Chroma:
"If you are converting an interlaced MPEG-1/MPEG-2 file, you may wish to "reinterlace" chroma. By checking "Reinterlace Chroma" you can enable a special remapping of 4:2: 0 chroma lines so they will be split correctly between the two video fields. This is a very advanced option: only professional users may see the difference in the output movie. This option is enabled by default; disable it when you are sure your file is not interlaced. This option has no effect if the source stream is not an MPEG-1/MPEG-2 stream."
Related:
Importing an MPEG camera clip
Importing a DVD
