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Taken from the help file:

If your vertical resolution is higher, such as 480, you are probably capturing in interlaced mode. Your capture card grabs two consecutive fields and combines them to form a single frame, which is saved to disk. The main problem with interlaced capture is that the two fields don’t have to correspond to the same frame. Instead of capturing 30 (25) frames per second and encoding them into pairs of fields, video cameras actually send alternating fields of 60 (50) different pictures.

The ball was moving right in the original video, and captured with 480 lines of resolution. Notice that the two fields captured don’t match. It wouldn’t have mattered if the capture had started one field earlier; the result would have been the same.

Motion-JPEG compressors also do not have a problem with interlaced video, because they compress interlaced frames as two separate fields.

ie I think that you need to download and install a Mjpeg codec. Only problem is they aren't free. That siad morgan multimedia do produce a demo that will work for 30 days. Its available @

Once you've captured it you can easily change the compression codec in virtualdub from the video menu to sonething more "friendly"

Phew 2 long posts on virtualdub in 2 days. This is becoming a habit.
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