This is what I used with good result.
Celeron 500MHz
60 Gb 7200 rpm Western D HD formatted to NTFS for large file capability.
ATi TV-Wonder VE + software that came with it.
Generic Soundcard, in my case on-board audio.
TMPGEnc : compression software. Free. See
this link for more info.
Capture to the highest MPEG1 quality you can. In my case 8000kB/s. Then compress to VCD with the following settings
in TMPGEnc:
Constant bit rate (CBR) 1150kB/sec 352*240 resolution (NTSC), 352*288 (PAL).
It took ~5 hours to encode 4.7Gb to VCD format.