after capturing the DV-AVI, should leave it at the default captured resolution 720 x 576 @ 25fps (PAL), or can I lower it, afterall VHS-C tapes have only ~240 lines.

the source is VHS-C and hi8 home video's which are PAL and interlaced.
I'm keeping them interlaced since the output should be played on a tv/dvd.

any recommended filters that I should run to maybe clean up the videos ?

which mpeg encoder do you recommend for the job ? /at what settings