The problem is .wmv is a progressive only format - when you convert from DV to .wmv it will deinterlace.
Does it look anything like these pictures?
http://www.100fps.com/
Deinterlacing is tricky, there are different methods (e.g. blend fields, interpolate). When you capture to .wmv it is doing some sort of deinterlacing with some unknown method.
You want to capture in the original DV-avi format. I don't use the XP Windows Movie Maker, but I believe it can capture DV-AVI, unaltered.
Alternately, any video editing software can capture DV-AVI, unaltered. I use Sony Vegas; a download of the more affordable “Movie Studio” version is available here
http://www.sonymediasoftware.com/Pro...ct.asp?PID=977
You could then “stream” the DV-AVI file the same way you are doing the .wmv file… or you can create a DVD-Video.