No - That is not what was meant.
AVI is a lossless format so does not lose information even during a considerable number of renders. On the other hand MPEG is, by its compressed nature, a lossy format and can lose information and hence quality no matter how long the file is. For simple changes, such as the odd transition or so, the loss would not be noticeable but in difficult circumstances where perhaps you need repeated attempts to get it right then (with repeated renderings) the loss in quality may well be noticeable. Some effects also affect the quality more than others.
Hence when it comes to creating the DVD the quality may or may not have been reduced depending on what work has been done. If the DVD is longer than an hour then the quality will be FURTHER reduced due to the additional compression required.
Having said that, I have been capturing in MPEG for years BUT I do it because usually it is just family or personal interest video and is easy to store on the computer. My choice of transitions and effects is also conservative. To me if it looks good it is good regardless if I have lost a bit of quality on the way that I did not know about.
However, the introduction of Studio 14 with its (to me) extra features is causing me to change my mind. I shall be importing in AVI from now on just to make sure.