Here's the deal:
First of all, it's not for me, it's for a friend. She and her husband bought one because the guy at Best Buy told her that it could be used for this. After she bought it, she called the guy and he said, "I'm sorry but Best Buy does not officially support..."
So, now I'm turning to the great ATOT'ers.
Oh damn, that sucks

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I know with our Tivo, if the DVD player is hooked to the video in, it doesn't see anything. This is most likely because it's not tuning to a particular channel, and because the Tivo doesn't record off of a "video in", it won't see it.
What your friend MAY be able to do is buy an RF modulator and hook it up to a second DVD player. Then tell the DVDRecorder to record from channel 3 (or 4, whatever the modulator is set for).
There's two problems introduced here though. First, there's Macrovision. If you hook up most DVD players through a VCR, the picture fades in and out as a copy protection method. Second, coaxial cable won't handle the better picture quality of a DVD, resulting in backups that may not look as good.
A third problem is if the DVD video is coming in over coax, there's no place for a regular antenna feed, which means it has to be disconnected every time a DVD would be duplicated. That will probably be more hassle than it's worth.
My advice, if they think it's not worth the money just to record/archive stuff off of TV or a video camera they have, then have them take it back. Bestbuy has a restocking fee, so they may be out 15% of the purchase price. Those are cool devices, I'd like one myself just for the DVR + DVDR archiving ability. Although now that there's a Tivo with a DVDR built in, that'd probably be what I'd get, just for the Tivo service.
How much did they pay for it? $700 isn't all that bad, but it's kind of steep. If they do return it, I'd point them in the direction of that Gateway set-top DVD recording box. It's affordable ($300) and paired with a set top DVD player and a macrovision-removal box (or a DVD player where macrovison can be disabled), they should be able to duplicate DVDs for under $400.
The only disadvantage to the gateway is it's lack of a hard drive. It's still a solid unit, I'm going to pick one up for my parents this Christmas.