On the other hand, if you want the highest possible quality, then you need to capture lossless from a good quality PCI video capture card, filter/process using AviSynth or VirtualDub, then carry out a multi-pass encode to MPEG-2. There's a lot to learn, but many members here have experience from trying to squeeze the best out of the Star Wars laserdiscs!
This guide is a good start. Anything else you want to know, just ask.