The file container doesn't make much difference in quality. It is all about the type of stream and how it is encoded. You can improve the quality the profile you are using by modifying the generic.mp4.h264.aac.xml file under "Program Files/DVDFab 6/Profiles". Change the following section to bump the encoding profile from Basic to Main (see H264 in Wikipedia for more info on the difference).
FYI, this change will get overwritten when you install a new version of DVDFab.
Personally I find that an 1100 bitrate produces too many compression errors (jagged lines, dark areas that move/shimmer even though the camera is still, and other video noise that comes and goes). Maybe PAL and NTSC are encoded differently by DVDFab and that is why GregiBoy and I never agree.
I'd start with the maximum (5000) and then bring it down until it starts to annoy you. I wouldn't bother with 2-pass because that is really designed for when you are setting a specific file size rather than an average bitrate. Also, if you are not already, I recommend encoding only a chapter or two while trying to find a bitrate that works for you.