I have decided after years of putting it off to start converting all of our old Hi8 family video tapes. A couple years ago I got a Sony TRV-480 Digital Hi8 camera that allows for dv output. I was wondering what the best way to capture the tapes would be. Would it be to just go through Firewire with the DV-out or plug composite/svideo out of the camera into my HD-PVR capture device (I think it can do SD video recording)? I'm not sure whether there will be any quality difference between both methods, but I wanted to try to hear from someone that maybe had done this before.
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You have clearly identified the issue and the two best methods. You will find fierce advocates here for both. Try a small sample of each and see which you prefer from a quality/end-to-end workflow perspective.
Simple, copy the video through Firewire, don't capture!
The obvious answer is: capture some clips with both and see which one you personally think looks better, as smrpix suggests.
Unfortunately you have one of the few Digital8 cameras with only composite output, no S-Video.
The original Hauppauge HD PVR can only capture H.264, and the IMO the highest bitrate available for SD with it isn't high enough to avoid softening -- based on what I've seen posted here. I've only used the HD PVR 2 personally, and not with tape sources.
Both methods will require re-encoding if you want to output a DVD.