The BT8x8 chips are a very old design, only suitable for AVI capturing. MPEG capturing is pretty much out of the question, at least in higher quality.
The modern ATI MMC was designed and made for THEATRE class chips, and require an overlay preview function not available in a BT chip. These chips cannot both display AND record hi-res video at the same time.
In order to use an x480 interlaced resolution with a BT8x8 chipset, you must use
VIRTUALDUB, with the VFW-WDM wrapper (which is built in Windows XP).
VirtualDub will then allow you to capture any number of AVI-codec formats, such as the highly regarded
HuffYUV, MJPEG or uncompressed AVI.
You will then need to encode the AVI to MPEG format in any MPEG encoder of your choosing, such as Tsumani MPEG Encoder (TMPGENC), Procoder, Mainconcept, CinemaCraft (CCE), etc.
You can get VirtualDub here:
http://virtualdub.sourceforge.net