It is expensive but digitalx wanted firewire input from an analogue source, so...
Yep, depending on what you are trying to do a regular analogue capture card would be fine.
USB capture devices I believe support VCD res max. As for hardware MPEG encoding, you are probably better off doing an huffyuv, VBLE, etc. AVI capture and then filtering with AVISynth before converting to MPEG, especially if going for DVD as you can do a multipass CCE encode.