When I have to do this I simply transfer the video to MiniDV. Your camcorder supports AV-IN. So connect your VCR to the CAM using the manufactureres instructions and record that way. You could also try connecting the VCR to the AV JAcks of your camera, and simultaneously connect the firwire (Sony call it i.LINK) then try capturing without recording to tape.
I don't have Pinnacle myself, but set the software to capture in lossless AVI, then alter your project/burning settings for DVD COmplaint MPEG2.
If you are uncertain how to achive this in Pinnacle then post back in the Pinnacle board of these Forums, and I am sure someone will pick it up.
Meantime good luck
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.