I'd say PC as well. It gives you far more control and efficiency. Chances are a standalone converter won't optimize how much space each video uses. You can probably do far better with a capture card and some freeware utilities.
As far as capture cards go, all you really need is a TV Tuner card that doesn't use some lame pass-through overlay crap. (
Early tuner cards did this because CPUs at the time couldn't handle it well) Check the Hot Deals forum for some possible deals. I paid about $20 for the card I use now, if I remember correctly. Fine for VHS captures.
Depending on the drivers the card has, you may be able to capture with
VirtualDub or
VirtualDubMod. Otherwise you could try using
VirtualVCR. One works on WDM-based cards, the other works on VFW-based cards; can't remember which is which though.
Anyway, for capturing you'll have to use low CPU load codecs, e.g. PCM (
WAV) for sound and
HuffyUV for video. If your PC is fast enough, you can also use the XviD codec set to single-pass mode. This will produce a much smaller file than if you use HuffyUV.
Once you get the video captured, you need to convert it to MPEG-1 or MPEG-2 format. You have a few options on software to do this. I recommend either
D.I.K.O. or
TMPGEnc. TMPGEnc isn't freeware, but D.I.K.O. is a little more unweildy and doesn't have TMPGEnc's Constant Quality bitrate control option. D.I.K.O., however, by default uses the
KDVD standard, which will let you fit more video onto a DVD. (
100% DVD compliant too) TMPGEnc can as well, but it's a bit trickier. Anyway, play with either of those and see which you preffer.
Also, when you're encoding, there's no point to chose any resolution but the lowest, (
352x240/288) as that is (
roughly) VHS resolution.
Feel free to bug me about any of this if you have questions or are confused.