What are the pros/cons to doing it either way. My current method is to export a Quicktime reference file from FCP, import into Compressor and choose the settings (usually 120 minute, best). From there I load the files into DVDSP and build the DVD. What are the drawbacks of just loading the reference file directly into DVDSP and going from there? Am I double compressing it the way I have been doing it?

Without question the best method for encoding your files is to use Compressor. Encoding options in DVDSP4 are bare-bones basic and don't offer the plethora of image-quality and bitrate controls Compressor uses.

And the best way to fully understand how to setup your encodes is to get this: Compressor 3 Quick Reference Guide, Brian Gary. Read that and you'll quickly master high-quality encodes for anything, not just DVDSP.