On a standard def TV, 325/480 isn't too bad for VHS-quality recordings.
I am wondering, when you said you captured in MPEG-4 mode, did you burn a standard video DVD or do you have a player capable of playing MPEG-4 video? As if you recorded in MPEG-4 but burned a standard DVD, it would've had to re-encode the video to MPEG-2, causing a huge quality drop (think of making a copy of a VHS tape, the quality drops every time you have to re-encode). Not to mention, when you watch on the PC you're more than likely seeing the MPEG-4 original and not the re-encoded copy.
Be sure to record in MPEG-2, 720/480, with like at least 4mbps bitrate, and see how that looks.