My system : AMD XP 1800+ 512MB RAM, 335GB HDD, ATI Radeon 8500, ATI TV Wonder Pro, Win XP Pro
Burner : Pionner A06 4X Dual Format -R/RW/+R/+RW Great multi fomat burner. Fast and reliable. Will be fairly cheap now $200 or less as newer 8X drives have come out. You can burn a full DVD in about 17Min @ 4X assuming all of the video that you are putting on the DVD is in the correct format and dosnt require transcoding.
Software: came with Burner Ulead DVD Factory/Stuido.
Great software that will allow you to capture, edit, and burn video to a DVD and allows you to make simple DVDs. The software came with the retail of the Pionner A06 so you kill 2 birds for the price of one

This should allow you to capture and work with your VHS on the software side
Capture Card: ATI TV Wonder Pro. I am happy with its preformance and it has served me well. No problems even though some have reported having dificulties with the card in XP. I put it in and it has worked flawlessly from day 1. I suggest you look at the features of the ATI TV Wonder Pro and some other captures cards like the WinTV serrries and see which fits you best and has the best price. Like I said, Im happy with my ATI capture card.
Depending on the length of your movies and if you wish to store them for long periods of time I would recomend a slightly larger hard drive to keep all your video work on. Newegg is selling some awesome Western Digital 120GB Hard Drives with a 8MB Cache for just $85. Digital Video uses lots of hard drive space and so does DVD Burning when it makes the VOBs for the DVD.
Those are my suggestions and Id be happy to answer any other questions if you have any
-: phenious :-