I have been importing old videotapes and things into my computer using Pinnacle AV/DV card and Pinnacle Studio Deluxe 8. This puts the files as AVI on my computer. I then edit them and burn them to DVD. I also like to keep them on my computer, but of course not as AVI since these files are to big. I then use Studio 8 to convert these avi files to MPEG-2 (cbr (set to 4500bps) since this is all Studio 8 can do).

1. When playing these MPEG-2 files on the computer monitor I can sometimes see alternate scans being off a bit (interlace). Studio 8 does not give choice to de-interlace interlaced files. When these files are played on a TV screen, they are OK (whick makes sence). Is there a good AVI to MPEG-2 encoder that does both VBR and de-interlacing of files. Does not matter if it is something I have to buy at a store or shareware (though I would prefer to have one that's store bought).

2. If I use Dazzle DVD Complete and I select de-interlace interlaced videos, I can see that some horizontals are stretched. Say a circle should be smooth and round all around. After de-interlacing the file, the top and bottom of the circle has a slight flat spot on them. I hope I gave a good understandable example here. And thoughts on this?

Any help would be appreciated.

You can deinterlace the material and then store the deinterlaced version for later playback...
http://www.100fps.com/
but why bother?

Since you're capturing interlaced, editing interlaced and outputting interlaced to DVD, just use a player on your PC which will deinterlace in real time as you playback. End of problem!

Before you ask, I don't know which players do this - but some do. Have a read around at doom9.org - or maybe someone will be along here with the answer in a minute...

Cheers,
David.

i completly agree, just keep it interlaced, powerdvd does a good job on playback deinterlacing btw.