...where is the quality lost?
Usually during re-compression. But, I'm not sure what's going on here... You are already using high-quality settings that should minimize this.
When you edit video, it has to be de-compressed and re-compressed. Most video formats (including MPEG) use
lossy compression, so the quality theoretically deteriorates every time you encode. Some formats are more lossy than others, and depending on many factors, you may, (or may not) notice the quality loss.
However, if you enable
SmartRender, the video will only be re-encoded where needed (i.e. during transitions), and the remaining video won't be affected. Of course, this requires that your output format be the same as your original format. And, if you do something like apply color adjustment to the entire video, the entire video will be re-coded.
Your camera records to MPEG-2 (same as DVDs), so if you're making a DVD, you should be able to use SmartRender. Or, try making an unedited DVD. (I'm not sure if your camera is
DVD-compatible MPEG-2, but I assume so.)
If you must re-encode, it's best to re-encode/render
once to your final format. Using a high bitrate (which you are already doing) and/or a less-compressed format will minimize the quality loss.
The camera I use, Panasonic SDR-H200, looks really good on a tv when it gets hooked up. But after editing, the quality doesn't look all that great on a computer monitor.
How does it look on the computer
before editing? Maybe it's your computer monitor??? (Colors on computer monitors are generated differently from NTSC/PAL colors, monitor refresh rates are different than video framerates, etc.)
-where it says "lower field first or upper field first" I save as Frame Based
If you're making a DVD, you should leave the field order unchanged. Frame based is probably best if you're making a file to play on the computer.