When you create your final video you could try apply anti-flickering filter. Forgive me, but I am using Video Studio 8 but the steps should be similar in v7,
1. Click the Share TAB
2. Select the appropriate format type
3. Click the 'Options' button
4. Make sure the 'Apply Anti-flickering filter' checkbox is checked (ie a green tick in the box)
5. Give your movie a name and save to the folder of your choice.
Hope that is of some help. I think your only other option is to de-interlace the video still at the capture stage, but you haven't mentioned the method use for grabbing the still.
COMPAQ something or other with 500Gb Boot Disk, 1Tb external Firewire Disk, 4Gb Memory and a super duper sound card, 19" TFT Monitor etc etc etc
Sony TRV33e : Sony TRV310e : Canon XM2
Sony Vegas Studio editions to v11
Remember, there is always more to learn than there is to teach.