PAL video dimensions are 720 x576 pixels , framerate 25fps and for DVD mpeg2 the encoding rate is average 3-8Mps. ( the higher the better)
The Pixel dimensions and frame rate for VCD are the same although encoding rate is decidedly more modest
All three parameters define the video playback quality apart from the actual quality from the kit used to record them
Unfortunately the very best examples of VCD are better (just about) than VHS , and this depends too on how good the starting material was ( kit used to do the recording)
The Sanyo you have records at VGA quality 640 x 480 (30 fps.. NTSC?) and ( max) 3Mps.. this is great for the PC but turning it to a VCD or DVD for TV playback will only show up how "modest" the starting material was.

You can certainly use its material for the likes of You tube and web pages with reasonable success
Im not sure how you can improve on what you are getting unless it is the software you are using which is not doing a good job but you are asking a lot of it TBH
I think it is an average digital still recorder with some video recording ability maybe better than a mobile phone or some cameras but it would be hard to get decent camcorder footage off it without a lot of luck..