For video editing, I am using Pinnacle Studio 7, and I am happy with it so far. Version 8 is now out and I hear that is better, but I haven't gotten it yet. I'm pretty much of a newbie, though.
As far as hardware, you'll need some kind of "Video In" board or "All-in-Wonder" type of video card. There are many, many choices here. Personally, I am using a PCI ATI TV Wonder card and it suits my needs with Windows 2000. I don't have any hardware problems with it at all, but many others who are using WinXP say that it doesn't work correctly on this OS. Many people on this forum are bagging on ATI about the lack of support for this card. In any case, it's nice to have a TV Tuner with the card as well, because I can tape TV shows directly to my computer.