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I'm a little confused on aspects of your setup. I'd suggest you simplify things initially and then gradually add stuff back in so you establish where problems are actually occuring.
I'm not familiar specifically with the PACE DI4001 STB. You refer to s-video as a connection. Ideally in the STB video settings, assuming you are using full pin SCART cables, not S-Video cables, set the output to RGB, not composite.
Ignore the RF cables from the splitter that you have. Disconnect them all so that the only ntl network facing connection is the screw end cable into the STB.
Using Scart leads connections should now be:
STB out #1 > TV in #1
STB out #2 > DVD Recorder in #1
DVD Recorder out #2 > TV in #2