AVI is the format to capture in for quality. You will need about 12GB per hour of capture, and additional space for processing.
Convert to MPEG2 for DVD's, and then use an authoring program to create the DVD files.
Read the tutorials located here on AVI to DVD (or SVCD, it's the same process).
There's a dozen or more ways to do the work, it's mostly a matter of person needs and taste. For limited amounts of work it doesn't make sense to buy a lot of software. The Nero-6 Ultra package has everything you need.