Sure, in virtualdub you click 'file->capture avi'
From there you can capture to whatever format you choose and whatever settings you choose.
I'd recommend capturing to either xvid or divx.
Yes, you need to connect the audio jack to your soundcard (the audio jack has to come from the scart-out of the vcr)
These sites are of excellent help->
http://www.dvdrhelp.com/ http://www.doom9.org/
-M