It depends on your needs. In my opinion, camcorders were designed to capture video and audio - they do that well. Their ability to capture stills is limited. dSLRs were designed to capture still images and they do that well. While they *can* capture video well, theirability to handle audio well is questionable. I either case, video is a "convenience feature on dSLRs as capturing stills is a "convenience feature" on camcorders.
This does not mean they cannot do well - they can - if they are used withing their design parameters. For example, if I want to record video of a whole football game most camcorders can easily accommodate that. It may mean multiple memory storage media so having empty spare digital tape or flash memory cards may be needed, but that is easy to do. On the other hand, continuous recording for long periods with a dSLR can result in the camera overheating. On the audio front, technically, you should be using an external recording device and synching the audio during editing, though most do not.
The Canon 550D (also known as the EOS Rebel T2i in the US) is a great dSLR. It has a built-in mono mic (compared to most camcorder's built-in stereo mics). The 550D has a 1/8" (3.5mm) stereo audio input jack - as does your camcorder. The 550D has no way to easily monitor the audio being recorded while the SD700 has a proper headphone jack. It is true that there are more and different interchangeable lenses for dSLRs (including the 550D, but there are add-on lenses that will easily fit the screw-mount on the 46mm diameter threads (just do a search using "46mm lens") including macro, tele, wide angle and fish-eye.
There are also (expensive adapter kits that allow the SD700 to use dSLR lenses if huge DoF is that important.
As for image quality - that depends. Assuming both are set to highest quality capture, most mortals would not be able to tell the difference assuming both cameras are pointed at the same thing recording simultaneously... with good lighting. In this case, under low light conditions, I would expect the SD700 to perform better than the 550D. However, as I recall, the 550D records to h.264 MOV files. Assuming compression is low, this is very similar to low compression HDV from miniDV tape. The SD700 captures high compression AVCHD (MOD) files. In the case of fast motion, it would be easy to tell which camera captured what - not by poor quality, but by the "artifacts" left by the AVCHD device.
But think about how shooting short subjects and music videos *really* works... Lots of short clips stitched together using a video editor. For music videos, use of prerecorded music rather than the live performance is typical. And retakes. Lots of them.
Personally, I don't like the manual controls "neatly tucked away in a little touchscreen". Every time you want to use something, you are hunting and moving the camera. With manual controls on the outside of the camcorder, there is less of a tendency to move the camcorder when the manual controls are used.
I did a shoot with a Sony HDR-FX1, HDR-HC1 and Canon HF S100. The audio was recorded to a Zoom H4. All white balanced at the same time on the same card under good lighting conditions (bright foggy day). No one can tell which camcorder recorded which portion of the video.
I did another shoot with the Sony HDR-HC1 set to standard definition video at 4:3 aspect ratio with a Canon XL2. Again, white balanced at the same time on the same card under good lighting conditions. No one can tell which camcorder recorded which portion of the video.
"Better" depends on your needs/wants and your budget. Is there a need for you to spend the $? Probably not. Will using a dSLR somehow make you look "more professional"? Maybe. Will anyone be able to tell the difference? Likely not. Rather than "one or the other, a multiple camera shoot gets fun, too. Is there anything telling you it must be one or the other? If not, use them both (i.e., one gets the wide shot while the other is getting the close-up).