I've used Dazzle exernal dongles for analog video input/output and they are a pretty good interface. Your finished dvd quality should be about the same as your original VHS so please consider the following.

Remember that VHS is possibly the worst quality video format ever used so if possible always record into your PC playing the original or 1st generation tape for highest possible quality.

Next, use a VHS player that has S-Video output - doesn't your Dazzle I/O include a S-Video input? All the ones I have seen include S-Video input.

Some will tell you to set your capture settings for .avi type video files. My personal experience is that when dealing with VHS you will get about as good a quality as your are going to get using S-Video and capturing as 720X480 (NTSC)resolution mpeg2 video files or 720X568 (PAL). Do not allow the Dazzle software to capture as dvd .vob.

There are a variety of editing software programs with free trials available as online downloads - Pinnacle, Adobe and Ulead are 3 well known - I have always preferred ULead Video Studio - full version eleven now on sale for about 45 pounds/$89 US.

I suggest you use your Dazzle capture device but under the control of one of the editing programs. Open your Pinnacle Studio and select Capture Menu and the Capture Settings and set capture for a trial as 720X480 or 720X568 mpeg2. If your VHS player is turned on, plugged into Dazzle and the tape is playing your editing program should "see" the Dazzle device.

Since you are experimenting consider also capture as .avi.

Then open the Pinnacle Editing Mode and open your video in the timeline and make whatever scene cuts or add whatever affects and/or titles you care to and then Finish or Render your project as mpeg2 720X480 if US or for PAL 720X576 - these are the standard resolutions for standard definition dvd.

Now you can open your finished/rendered video program into a DVD Authoring program - create your menus and chapter points and when ready render as a dvd disc or dvd file for burning later which will transcode your program to the necessary .vob file format.

Good Luck
Ask question as you care to need to.
Jim