Use virtualdub. Runs on windows, has lots of filters you can use and is very easy to use. This is what me and my father used a couple years ago to do that exact same thing: get vhs into computer and save as AVI files. You will need to find a tutorial on the web, but the software is very intuitive to use (my father is not very computer savvy and yet he was able to do it on his own).
You will need and Xvid codec to encode the files. But it is very easy to use.

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