yes,as kl33per said:conatiner doesn't really matter....a codec does...(for example,it is possible to have .avi(mpeg4video) encoding which looks much worse than .mpeg(mpeg2video) \codecs in brackets\ ...i have presented one such example here
http://virtualdub.everwicked.com/index.php?act=ST&f=3&t=6391see my last post...after this,i believe that extremely optimised mpeg2 encoder can come REAL close to mpeg4....but(bad news) no such encoders exist to the my knowledge...)
there is one more problem usually when stacking these two codecs agains each-other;people usually use lower resolutions for mpeg4,and then they claim "10x better than mpeg2" (that,actually,is a divx5(dxn's) hoax!it is silly marekting number!)
this is not correct,offcourse!
if you're using excellent mpeg4 encoder and excellent mpeg2 encoder on same resolution,differences tends to get as small as 10-30%(this is small compared to dxn's claim)
as my tests proved;
http://i4004.0catch.com/(see points 10,12,13(especially),14..........i recommend usage of mozilla based web-browser(or something that can block the junk) for this site,as it has pop-ups)
there are even some users that say mpeg4 can never look as sharp as mpeg2,but i think this is because such particular user was trying the wrong mpeg4 codecs for the purpose!
both codecs come from the same bag,so to speak.....it is mpeg,same as h264 will be ,and same as mpeg's 'fathers' h.261/263 were based on same principles....
so you will find your answer in the practicality of use and image quality of both systems;for example,if you have dvd-player and a burner,and you don't have nice tv-out on your video(aka graphics)-card and you don't own mpeg4 capable dvd-player,you may toy with mpeg2 and have excellent results (as kl33per said,at this time usually mpeg4 will look somewhat better on lower bitrates,ie it's more eficient...but no one said you are required to use lobitratte on dvdr's!in fact you're ot!)
on the other hand,if you already have nice tv-out,or mpeg4 capable dvd-player,you can take advantage of packing more stuff per MB with mpeg4....
(i dunno what amounts of stuff you intend to watch/encode(or so),but if you want to store 1 film per week, those dvdr's won't be stacking that fast even with mpeg2)
i have a nice tv-out and i'm not even considering buying a dvd-player(with or without mpeg4 support) and most of my stuff is .avi....
does it look good?
yeap....looks just fine.....(hell,better than DVB

)
btw. dvd-authoring/burning process is much more complicated than simply burning .avi files to media.....
this stems from a need to respect dvd-standard......(you also need to use onyl predefined resolutions etc.)
avi+tv-out is flexible enough so you can do ultra-low bitrate for talk show(lower res. etc.) and ultra high bitrate if you want sports or such....
mpeg's(mpeg1 or 2) bitrate is always relatively high(or you're doing 352x576/480,which in turn looks worse than vhs....this may sound weird at first,but a bunck of us is writing capping guide for doom9(yeap,i'm expelled from doom9 and still i'm writing for it...am i not crazy?) so we tested few things,and that's not a false claim....alongside those lines it can also be said that vhs looks beter than svcd's(there,the 480 res. is en-par with vhs,but you have 2,5Mbit limit,and rare mpeg2 encoders will do good on such lo bitrates!))
in the end,best suggestion is always,to try 'em both(if possible) ,and see what suits you best....(and if you have poor tv-out quality,you'll just hate mpeg4....but be aware it's just your tv-out...

)
/ivo