While the camera's small footprint can certainly be an asset in documentary, I would not recommend using this camera for a "professional" production. If your project is a student project, one that you are doing to learn documentary, or one in which you are giving your subjects cameras to document their own lives, then please keep reading to the end.
As Drew noted, the camera is a single CCD camera, and as a result doesn't exactly produce the best images. As a rule, the camera does not do well in low light situations - you will get the best pictures only with a generous amount of light (read: well lit).
Aside from the technical specifications of the ZR60, there are issues with both the build quality and usability. In terms of build quality, in my experience with any regular use they seem to break within a year - two units which were used regularly but lightly suddenly stopped capturing images almost exactly one year after they were purchased. (Only a black picture, or occasionally one with thin, multicolored vertical lines, were output in camera mode.) Anecdotal information from web searches seemed to confirm that this problem was not unique - so be aware that it is possible for the imaging portion of your camera to unexpectedly fail. Since documentaries often shoot quite a bit of footage over extended periods of time, this possibility may be of concern to you.
As for usability, as far as I could tell exposure in manual mode is never truly manual: the camera's AE shift function / mode - your only means of exposure control - will still automatically adjust exposure to a certain degree in response to changes in lighting conditions. When operating, you should keep in mind that you must toggle between controlling exposure and focus by pressing the button matched to that function - this may prove to be a problem if you have to quickly and smoothly (i.e. without much camera shake) make focus and/or exposure changes during a shot.
Of course, depending on the nature of your production and where it will be distributed, the shortcomings of this camera may not be all that big of a deal. Indeed, if you are doing this project as a student project, as an exercise in learning documentary, or are literally handing over cameras to subjects so that they can document their own lives, then this camera will likely work well for you, as its lack of certain manual controls is made up for in terms of its ease of use. However, the professionalism of your end product - and possibly your avenues for distribution - will be limited by the control you have over your images: auto-focus and auto-exposure are hallmarks of amateur productions. (And yes, I know that there are some documentaries that egregiously use auto-focus and auto-exposure, but this is a cinematography forum, where we try to create 'accomplished' images.) So, in the end all I am saying is that you need to understand the limitations of your equipment. If you really want to have greater control of the images you create, then I would suggest using a more advanced camera.
As for your other questions, assuming that there are no problems with your tapes, you should have no problem creating a DVD from the material you shoot with this camera. When your camera indicates it is recording in 16-bit, this is merely telling you that the camera is recording its audio with 16-bits (the same number of bits as an audio CD), and not 12-bit. 16-bit is the highest quality of sound recording in the mini-DV format, and as such you should always use this mode. There are few, if any, benefits to recording your audio in the 12-bit mode.
Good luck on your project Abyssa!!!
Best,
Denis
(who once taught a video/filmmaking class with a couple of these cameras, as well as others)
