Can anyone recommend a good mpeg 2 hardware encoder that I could use with DVDA 3?

I have some dark DV footage that looks terrible with software encoders. I've tried everything from Procoder to MainConcept.

I am under the impression that a mpeg 2 hardware encoder deals better with dark footage. Is this correct?

My budget is $600

I think you just need a good noise reducer. Try some of the avisynth plug-ins before shelling out money.

Your problem is not encoding; you should resolve the grain (dark footage with noise makes me think it's grain) BEFORE encoding. After Effects for example works miracles.