I've been doing a lot of googling on this very subject and trying to understand it all better, it is very daunting when you first get into video capture!
PAL 576i (25fps)
MPEG2 is apparently exactly the same format that terestrial TV is broadcast in, this is also exactly the same format that
EasyCap captures in, so the quality is good! However, most video capture software will compress the incoming video stream to a much smaller file size and this is the weak link in the process where the quality can be lost, also after you edit the file and export it in another compressed format this can compund the problem even further. Realtime compression can also use a lot of CPU and if it maxes out during capture/compression it can cause lots of frame drops, stutters, freezes and other problems in the resulting file like popping and clicking audio.
The only way to get full resolution is to capture as an uncompressed AVI file, which may use several gb per minute and then import that into your project and burn it to DVD. Or you could try experimenting using different
file formats and lossless
video/
audio codecs until you get a smaller file size that looks aceptable to you.
Try some experiments using this upgraded demo of
AMCap* and some
free codecs.

*It lets you choose what ever codec you like as long as it is installed on your PC!
*Times out after 20 mins then asks you to pay!
*Microsoft DirectX 9.0 required.