I convert VHS to DVD quite a bit with Linux. I use a Hauppauge PVR-250 card which is nice because it encodes straight to MPEG2 ES which is ready to go straight into VOBs without re-encoding. To perform the captures I use all command line tools and can make it very sophisticated since I like to have fine grain control over bitrates, GOP size, audio, etc.. It's really easy to use the v4l2 command line program to set bitrates, resolution, and so forth, and then just use mplayer to dump the input into a file. This process can be scripted as well so it's just as simple as executing a single file.
As far as removing level 1 and 2 macrovision, look for this device http://www.amazon.com/Sima-SCC-Video.../dp/B0000695AO. I've had one of those since the 90's and they work great. There are much simpler ones available with just an input and output and 9V battery. These products are usually sold under the terminology "digital video stabilizer" or something like that. Don't expect to find one called a "macrovison defeater" or "macrovision stripper"!