I know this thread is a few years old, but I've been converting my old vhs-c tapes to video using an old vcr and a BT878 capture card (old ATI-TV PCI card). I've found so far this is the best config:

date ; mencoder tv:// -tv channel=1:driver=v4l2:device=/dev/video0:normid=0:input=1:chanlist=us-cable:alsa:adevice=hw.0:brightness=0:contrast=0:hue=0:saturation=0 -vf pp=lb -oac mp3lame  -ovc x264 -x264encopts bitrate=1500 pass=1 nr=2000 -quiet -o video_out.avi ; date
Now granted, I'm on a core2 quad q6600 chip and using a lot of CPU, so your encoder milage may vary.

The output is an avi container containing x264 encoded video at 1.5Mb/s and mp3 audio at 256kbps.

Things to look out for:
  1. ALSA channel - my input was on linein - hw.0
  2. tv channel input - I used aux in and that was on input=1

If you know how long the tape is, you can wrap the script in the ever awesome timeout function:

timeout 35m mencoder ....
Hope this helps someone else.