I can definitely help you with this effort.
A couple of questions though... What hardware do you have to encode the videos from tape (a make/model would be great)?
I would say.... If you want to mix and match on-the-fly with playlists in MC, you're going to have to go with separate clips. MC doesn't handle chapters at all right now, and I'd say we're quite far from anything you seem to be looking for (where they can be treated almost like CUE files as separate tracks). This isn't just an MC limitation... It is just how most video applications are going to work.
Assuming you HAVE hardware and that your hardware supports a MPEG-2 native encoder (or that you don't and you'll buy one that does) I'd look at
Womble Video Wizard for editing the video (it can probably capture for you too though I've never used it for this). It works well and is easy to use. I wouldn't probably keep them in MPEG-2 format (not for hard drive storage anyway -- it is still too big) but I'd convert them to either XviD AVIs or X264 MKVs. The benefit of recording direct to MPEG-2 (and editing in that format) is that going to DVD requires no re-encoding or the accompanying quality degredation and time sink. You can just mux it out to DVD with an authoring application and call it a day!
For saving to hard drive for use with MC, I'd look seriously at using the X264 codec in a MKV (or MP4 if you prefer) container. This is going to give you the best possible quality for the compression.
The trouble is, even though VHS may seem "lower quality" so then the compression used could be worse, this actually compounds the issue because you're talking about encoding analog noise and converting it to digital. Taking a bad signal and making it worse, in other words. The newer codecs (such as X264) are going to be much better at dealing with a noisy analog source, than some of the older simpler codecs. The tradeoff is, as always, time and compatibility. X264 video isn't really compatible with many hardware players, if you care about this. I think you
can actually get an Archos video player to handle X264 MP4s with an extra plugin, and if you are VERY careful with the encoding process I
think you can make MP4 X264 videos that will work with an iPod but I'm not sure.
MKVs aren't really compatible with any hardware. They do have one big benefit though... Much wider codec support, including (the heavyweight) AC3 compatibility. MP4s don't support AC3, which means no direct no-reconversion rips from DVD. This won't really apply to your VHS encodes, but it does stink. MKVs also have much better subtitle and chaptering support, and all kinds of better features. If you only need to support computer-based playback, this is a great way to go. Check the comparison here:
http://en.wikipedia.org/wiki/Comparison_of_container_formatsXviD AVIs are going to be much more compatible, but you'll need to use a fair bit larger file size to achieve good results, and X264 really does just do a better job with certain content (which may include your VHS). Here's a rough little "good starting target size guide" (this isn't based on much more than experience and personal preference -- I'm no x264 or XviD encoding master):
XviD (2 pass) with MP3 @ ~160kbps VBR audio (very good quality): 550-600 MB / hour
XviD (2 pass) with MP3 @ ~128kbps VBR audio (good quality): 330-380MB / hour (but for 1/2 hour I'd still go with a bit larger and 220 MB or so)
X264 (2 pass better quality high profile) with AAC @ Q0.45 (excellent quality): 450-550MB / hour
X264 (2 pass better quality high profile) with AAC @ Q0.40 (very good quality): 270-350MB / hour
The two programs I'd probably recommend the most for the encoding are still:
XviD AVI:
AutoGKX264, WMV, or XviD (variety of containers):
AutoMKVAutoMKV takes a bit more legwork to get set up (it doesn't have an installer, and you need a few auxiliary applications installed -- mostly AVISynth). I also use AutoMKV with the Nero AAC Encoder. Just follow the instructions to download the DLL and then put it in the indicated directory.
Another option that might work well for you would be something like the
Plextor ConvertX PX-TV402U. This can record directly to MPEG-4 ASP and DivX AVI files. The quality isn't anywhere near as good as the two-pass encoding you can do after the fact, but if you have a lot to do, the quality is pretty good (I have one so I could post a clip if you need). Editing it might be a pain. I have the Mac version, and it actually comes with a nice simple recording application, PVR, and editor wizard bundled in. I don't know what the Windows version has.