I tried windows movie maker first, but the WMV format isn't ideal and it was painful to break the clips out. I am using Sony Video Capture 6.0 currently, this saves all of the clips to separate files which is nice but I can't figure out how to compress the video while capturing. Any ideas?
You don't want to be compressing anything when capturing, unless its with a mpg2capture card. Not sure about Sony Video Capture as I used Adobe Premiere Pro, but the captured avi is about 13meg per hour. Once captured, use the software to encode it to mpeg2 for a dvd authoring program. This will compress the file depending upon your bitrate.