For which cable to use it depends on your player and viewing/capturing equipment. Standard composite video allows for your TV or capture device to do any filtering and because it is likely that it is newer and better at doing this than your player then you should go that route. S-video is typically reserved for units older than your player because that makes your player filter the image though its own processors. It's all your own preference though. You have to see for yourself which gives you a better image with the equipment you have.
I don't think keeping the PCM is a bad idea. In fact the lossless audio was one of the things that got me interested in the big shiny discs. If you're burning back to DVDs though it might cause some space issues. When I did some transfers I eventually had to go back to 448 kbp/s ac3 in order to not cut back on the video bitrate. I think it really depends on if you enjoy the sound fidelity. Some don't care whether audio is lossy ac3 or a lossless codec so it's really up to you or the disc size.
Since you're capturing straight to a DVD recorder, I don't think there's much more you can do to improve things. From what I always understood there's only so much that those can handle. Originally when I set out to capture VHS I had looked at this method but then ran into Macrovision issues. Then I found a DV bridge and began using a computer to capture LD footage. So I'd say if you find a way to do things that works for you then keep at it.
As far as your player is concerned, looks like you've got one of the Pioneers that was designed for Karaoke. I don't think there's any significant difference from a regular player, save for if you really like Karaoke. From the ldarchive photos it looks like it's from the early to mid 90's judging by the parts and buttons. In my experience, be sure and stick with Pioneer for players. As long as the picture is relatively clear and there's a digital audio out you should do pretty well. It has no relation to the earlier V8000 which was a real workhorse. The first player I used was a lesser version (V4400) which was built like a tank and had a giant brick remote. There are always better players out there, so keep an eye out for something local. I got my Pioneer D702 for $25 on craigslist two years ago. It's got an auto flip for side changes which is something you might enjoy.