Let's start with how to use 
Microsoft's built-in Movie making software. They actually released a second 
version of this a little while ago which considerably expanded its capabilities. 
If you haven't already, download it through Windows update: Go to 'start\all 
programs\windows update' and find new updates. It will be in the 'windows XP' 
category.            
             
          
   
Download and install the 
update. Once that is complete, start Windows Movie Maker: "start \ all 
programs \ accessories \ windows movie maker.    

Click 'capture from video 
device' on the left-hand menu.        

Now choose the video device 
that you wish to use to capture the file. Also make sure the correct sound card 
is selected under 'audio device.' Raise the 'input level' slider up to about 
halfway, as this represents the volume level of the captured audio. Select the 
correct 'video input source' (either composite, s-video, or TV-tuner). Click 
OK.