What’s happening here is that your computer is compressing the MPEG-2 wrong. Somewhere, the picture is being degraded. You may be capturing a very small size. It is pretty clear that your capture card is capturing at a smaller size than needed. You want to capture at 640×480. Look at the file you’re capturing and get the properties. If it is at 640×480, but still looks blurry, then the transcoding is going wrong.