Sorry for being lazy.....
Yes, the AIW would be the only thing you need.. the breakout box contains inputs for audio and video. If you have a radeon 8500 AIW (either the 64 Mb or the 128 MB) you are a lucky guy..... That is all you need.
My suggestion is to capture as AVI (not MPEG2) using hufyuv for maximum quality of mjpeg for very good quality. If you have a fast CPU, you can try capturing to DivX on the fly (if your tapes are VHS, do't waste hard drive space by capturing at full size.... 320x240 (352x240) is plenty as this is the resolution used in VHS.
I said don't capture to MPEG2 because MPEG2 is NOT VCD compliant. MPEG1 is VCD compliant....
I forgot that you want to create DVDs....
Now, you need a good MPEG2 encoder (even though MPEG2 is standard, the quality of the encoders is different.... something simlar to MP3, in which LAME is the best). TMPGEnc is my opinion your best best to encode.
Alex