Best "low-impact" capturing settings?

I'm trying to convert some VHS tapes to VCD for convenience reasons, and I'm using VirtualDub to do this.

Unfortunately, I don't have a lot of disk space, only 2.7GB available for captures. I have to use some kind of compression, and the best & quickest I found was Indeo 5 with "Quick Compress" turned on. I can get a 115 minute movie in about 1.5GB, at 354x240, 29.976fps

The problem is with sound and dropped frames. If I encode with any cheezy audio compressor, the sound is really buzzy, unacceptably so. If I use MP3, it's great, but I start losing frames left & right on the capture.

I have an Athon 800 with Win2k, 128 MB RAM and alas only a 5400RPM drive.

What can I adjust to minimize frame loss and still get good audio?