I've just been through a similar exercise.
There are some great forums on DVD and video capture, just google and you'll find what you need (though likely, more than you need!)
I plug my camcorder into a video capture card, and record onto my PC via Nero, as an mpeg. AVI is fine, except for the large file size, hence I use mpeg. AFAIK mpeg quality is essentialy the same as a DVD. I would not use WMV, it locks you into a format which is not as common as mpeg or avi.
When reviewing formats, I suggest playback on a big screen to see quality differences.
I burnt several test DVD's to get what made me happy.