Steve,
Apparently the problem is not with the capture part, as the result is OK, when you burn the video with Nero.
1) What is happening when you capture straight and burn with DVD Recorder ? Do you get an acceptable quality ?
2) What is happening if you create your project with Studio, without burning, and then burn the DVD content with Nero?
3) When creating your project with Studio, which settings are you selecting to burn your project?

I would recommend you to update your version of Studio 10 with the Studio 10.8 patch available from Pinnacle Systems - Product Support - Studio version 10 - Download Area - Drivers - Updates.

If you installed on your system some CODEC pack as K-Lite, you shoudl try uninstalling these packs and check again if Studio encoding is giving a better quality.

Bertrand
Pinnacle