Studio deluxe 8 is a great choice for you. you'll be able to combine your old vhs footage with still photo's graphics and titles. in the future when you go to dv, studio deluxe will be right there for you to edit it.
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I would also consider getting another Hard Drive, perhaps a 60 or 80 gig 7200 rpm with 4mb cache or higher as a video capture and editing only drive. With only 15 gig left on your OS Drive, you don't have very much to work with.
As far as a burner goes, I like the Pioneer A04 and the Panasonic LF-D321 DvD Burners. They are excellent machines. Stay away from HP and Sony. They don't hold a candle to these two quality made machines.
Yes, Studio 8 will do you a decent job, but you may want to consider going with Adobe Premier 6.5, it has the best Mpeg 2 encoder I ever encountered for DvD creation.