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Best way is to buy yourself a video capture card. Personally I like the Hauppauge line of vid capture cards -- the PVR-250 or PVR-350 work great for this, and are a separate card from your video card (unlike the ATI all-in-wonder cards).
So basically you'll hook your vcr up to the vid capture card (make sure to use the s-video jack for better video results), and use the software that came with your captue card to capture one long-ass mpeg in whatever quality you want. Most of these software bundles have profiles with different size and/or framerate settings and such, so you can choose which works best.
Once you have this big mpeg file on your PC, you can then use a tool like TMPEGEnc to split it up into smaller mpeg clips. And if you wanted to go one step further and save yourself some bandwidth, you could even go with Windows Media files (WMV). The Windows Media Encoder is the tool for that.
Good luck!
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