In the meanwhile, I played around with different presets, including DSLR. The resolution is slightly better on the burned DVD, but still quite blurry. Most likely its not due to my source files. Because I also tested with their original themed movies from Premiere Elements 12. The resolution is equally bad.
I've created a different slideshow back in 2009 for another friend's wedding, using Premiere Elements 7, windows 7. I went back to the video and checked the preset setting. It seems I may have used the wrong preset as well. I used HDV 1080i back then. But the pictures and videos looked totally fine on burned DVD.
So with PE 12, I figured I will also try HDV (since it worked for me before), the outcome resolution was even worst on PE12 and Window 8, than DSLR or AVCHD.
I started to suspect it may be the burner's problem. So instead of burning it to a DVD, I exported file to the computer hard drive. The resolution is equally bad.
I'm so frustrated... Please help...