Yes, a firewire connection will allow you to achieve dvd quality resolution. You must have a video editing program installed in order to "capture" the video, and it comes in at 1x (real time capture). Files are big. 1 hr video yields a 13g AVI file. The USB connection is meant to import stills, not the high reslution video. Sony (and the other manufacturers) don't explain this very well, and they don't even provide a firewire cable in the box. It is worth it to get a firewire connector and a decent video editing package. The HC32 is capable of producing a very good dvd video picture. And yes, you will need a video capture card. Some cards come with a decent video editor. Hopefully you have a p4 processor and a fairly big hard drive. If not, it is simpler to go with a free standing video recorder.
I have tried usb streaming to my pc the camera limits it to a max 320x240 res.
If i was to Purchase a video capture card and to use a firewire cable would this allow me to capture in full resoltuion?

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