Yes you can do it on your PC, but with the size of your hard drive you could fill it up fast. Also the rendering times will be long. I have an AMD 2000XP and it will render a 20min video in 14~16 min, while my AMD64 3200 will do the same video in 6~7min.
Since video processing takes over most of the processor get a new PC for that and keep your old PC for current tasks.
I would also check out the mulimedia fourm lots of info there.
You will need a capture card or divice, I have put a couple of links with lots of good info to get you started, repost if you have any questions. John
http://www.build-your-own-computer-tips.com/index.html
http://www.videohelp.com/
http://www.timwerx.net/odds/pcfile.htm