Yep, your PC is plenty good enough to do video editing. You don't say how much disk space you have so I'll let you know that to capture 1 hour of video will take approx 13Gb of disk space. You will then need somewhere around that amount again for editing and file conversion. So you should have at least 20-30Gb of free disk space. I would recommend that if your PC only has a single HDD you add a second that has no programs installed (that includes editing software etc) and is just used for the captured/edited video. If you already have 2 HDD then you can get away with it as longas you have the spare space.
To capture analogue video is more expensive than for purely digital. A good allrounf capture device that will give good results is 'Pinnacle Studio 9 AV/DV'. This comes with the highly rated Studio 9 software that does everything from capture to creating the final DVD (DVD burner sold separately

) and is fairly easy to learn and use. This will allow you to capture analogue via composite & S-Video and digital via firewire, so should be fairly future proof.
When doing editing on a PC you really should stop
ALL other programs as it will take just about all the resources the PC has. This includes all antivirus/firewall etc and you should disable power save modes etc. A good program I use to stop antivirus etc is 'EndItAll' and can be downloaded for free - do an internet search for it.
Be aware that even with a good spec of PC, converting the AVI files to the final MPEG footage and then copying to a DVD disk will take several hours - and that it after you have done all the work to create the edits as required.
PC editing is a bit of a steep learning curve, but with a bit of practice you can get results that will give results that are far better than from any standalone DVD recorder, with the adition of menus, text, background music etc all fairly easy to add with the correct software.
Mark.