Welcome to the forums,
I apologize for the extreme delay in response.
First off it would appear that you may need to beef up your ram to at least 1 gig. This holds especially true if you have several running processes in the background. Processes like anti-virus, instant messenger apps, connected to the internet and so on. I would also recommend shutting down those background apps while trying to capture, edit or burn. They steal valuable resources that are needed for video editing and creating DVDs.
Next would be the very limited space you have available to work with. 40 gig on either is really at the very bottom end. For example I have 2-internal HDDs, each being 250 gig, and 1-external 500 gig HDD. Since you capture to MPEG-2 it does require less space, but can still add up quickly. VS needs enough
free space to store temp files while you're editing and burning.
You can capture to an external USB HDD, however you would want to transfer those back to an internal drive to edit and burn. USB, which is Universal Serial Bus, can pose data transfer problems. This mainly happens because there are so many peripherals that use it. There's really no way to prioritize on over the other. So just using a USB mouse, a USB keyboard along with your USB HDD, can cause the data from the external HDD to suddenly be interrupted, or slowed. In a nutshell USB just does not manage the traffic very well.
Since your target viewing device is a 48" 1080i TV, which is considered High-Def, your Standard Def video is not going to be nearly as crisp and clear. The resolution of your TV is 1080 lines, whereas for your DVD is only 576 or 480 lines. The TV then enlarges this to fit the display. Have you taken a low-resolution photo in an image editing program, and zoomed in on it? At some point it becomes pixelated, having jagged edges. This is what's happening on your TV. About the only recourse would be to produce video that is equal to that of your TV.
Your source video of course would need to be a higher quality. Taking a standard video from a DV or mini-DV camcorder would also suffer when enlarging. Then if you're using video from a VCR (VHS), this is really going to suffer, because it is still of lessor quality than that of a Digital-8 or mini-DV camcorder.
For instance the frame sizes (resolutions) for SD (Standard Def) DVD are:
PAL: 720 x 576
NTSC: 720 x 480.
SD DVD will not allow anything larger. You would need to use a camcorder that records Hi-Def or at least your source clips would need to meet the Hi-Def Specs.
You can with VS (full version) upscale your video. This is done by outputting a video file with frame sizes larger than that of your source. However since HD video is commonly in wide-screen format you will need to be sure to use video clips that have been recorded in 16:9 aspect ratio or else your 4:3 clips will be squashed and stretched. You can convert 4:3 to 16:9 however this requires cropping the top and bottom of your video.
Since your VS10 version came bundled with your capture device (or some other) it is what's called an
SE or Special Edition. It is not a
fullfeatured version, but is a fully functional. These SE versions are generally tweaked by the hardware vendor that packaged them with the hardware, to work with the hardware. This is not done by Ulead or Corel. The one advantage is that most SE versions do qualify for special upgrade prices.