I use my TV card which I bought for about £20 (it's a life-view fly video something or other), it's got s-video, and composite inputs.
I have used it to capture from 8-mm camcorders and VHS straight to DVD compliant MPEG-2 using Arcsoft ShowBiz. I've "backed up" some of the old VHS tapes that I've made onto DVD and the quality is quite good.
I've tried to capture AVI from analogue sources but my machine doesn't have much memory so I can only manage small resolutions, never had any problems with MPEG-2 though.
It's a bit like this Pinnacle card.
Panasonic SD9, Panasonic NVGS-75, Canon MV600i