I think the other person in that thread had mentioned the bypass, not lordsmurf. He was only referring to the action taken by the other poster.
Generally speaking, if you can see the capture card in
VirtualDub, you're able to capture AVI files, which means you're able to use an installed system encoding codec.
HuffYUV, for example, or even the newly-available Matrox codecs (broadcast MPEG-2, Matrox DV, etc).
I would always opt for uncompressed or lossless (
HuffYUV) encoding, when possible. Next choice is high bitrate MPEG-2. I put DV dead last, of the 3 choices. The colorspace compression is just not conducive to quality VHS/8mm conversions. (That would include S-VHS, Hi8, etc)
The ADVC100 is also not the best of devices, nor is their DV codec the best one. I'd much prefer to use a Canon camera in pass-through mode, given the choice of DV methods. Or Matrox DV, with any number of devices (now near-limitless, since Matrox made their DV codecs available a few months ago).
If you search the forum, you'll find past posts on DV compression, Matrox codecs, and
VirtualDub capturing.
Hope that helps!