I am in the processes of transfering a couple tv series into my pc using my ati aiw 8500dv as my capturing device. I was originally going to convert them to vcd but I found out each episode was about 42-43min long after I edited out the credits. I was hoping to fit two episodes per disc, but I cannot and using one disc per episode is not viable to me.
So I went to convert them into one of the mpeg 4 formats (divx/xvid). The problem is I am getting horrible results. After I convert to divx or xvid, I see blocks, artifacts, etc. I have tried video filters that blur it a bit, but unless I blur it alot it the picture doesn't look right. Yes, I know crap in crap out, but the video I captured doesn't look like crap. Does someone have experience with video capture and can tell me the EXACT settings they've used? Suggestions are welcomed too.
I am captureing from my vcr to my hard drive using Pic Video's MJPEG codec at level 18(huffy's takes to much space) and at 640x480. I am trying to fit at least 3 episodes (~2hours 15min total) on one 80min CD. I know that can be done because I have divx files(not encoded by me) that are about 2 hours and 10 min long and the pictures still look GREAT. I have tried converting with xvid and divx using bitrate calculators.

These are the settings I've tried when converting to divx:
Setting 1
VBR mode: 1 pass
Encoding bitrate: 579
Setting 2
VBR mode: 1 pass
Encoding bitrate: 900

Settings I've tried with xvid:
Setting 1
Encoding mode: 1 pass CBR
Bitrate: 581
Setting 2
Encoding mode: 1 pass CBR
Bitrate: 900

I used virtual dub with both codecs and have tried the blur filter. I will be using the tv-out function of my video card, so I thought there was no need to deinterlace it.