Hauppauge HD PVR capture and jerky video issue

[Split Infinity]

Recently I purchased Hauppauge's HD PVR in order to record XBOX360 and PS3 gameplay movies in HD. The PVR came with the software called ArcSoft_TotalMedia_Extreme (which I think could be replaced by another capture software... do you think it would make a difference?). I hooked up XBOX360, PVR and PC as instructed. However, there's a small issue that's annoying me.

The video image that's being displayed on my PC jerks every so often (even when I'm not recording), and I don't know what could be causing it. Here's an example of a video I captured off XBOX360 and then encoded with Cyberlink Power Director.
http://www.youtube.com/watch?v=JvGf57qug58
Look at HP gauges of characters in lower right corner and see them jerk every so often (example is at 00:53).

I tried things I thought may make a difference, but with no success. Among other things, I lowered the resi of my monitor and had it display 16-bit color, I disabled my anti-virus and firewall programs, and toyed around with setting within ArcSoft capture module (like lowering encoding bitrate to 5MB/s). I also tried lowering the input resolution from XBOX360 to 720p and 480p, but no dice. I'm from PAL territory, if that's an important info.

Here's my PC's specs and graphics card I'm using:
Windows XP Service Pack 3 Intel(R) Core(TM)2 Duo CP
E8200 @ 2.66GHz 2.66 GHz, 2,00 GB of RAM
500 GB HDD
Graphics card - NVIDIA Geforce 9600 GT

The comp is about 2~2,5 yrs old. Is it just too crappy to handle this task? Until I bought PVR, I was using DScaler as my software of choice for capturing gameplay videos thru my TV tuner. When I click on 'Sources', I can see Hauppauge HD PVR capture device (DShow) as an option.

Upon clicking it, DScaler prompts me with following error.
- Failer to connect video capture device to renderer.
- Error code: 0x80070057
Errortext: 'One or more arguments are invalid'
File C:\Source\deinterlace\DScalerBuild4115\Dscaler\Dsc aler\dshowsource\DSSourse.cpp Line 1686

Can I somehow make DScaler to be able to capture movies with PVR as my source? I'm quite illiterate when it comes to making changes to setups, so if this question is a relly stupid one, then just dismiss it.