It's unlikely that �500 from PCW 3 years ago would have included any video in capabilities - though does in run XP or is it a "Media Centre" PC. You could be in luck if the latter.
Fitting a DVD burner into your PC will enable you to record to DVD. You will be able to fit a lot more data onto a disc and, with the appropriate software (often included with the drive), create discs your DVD player should be able to play. (Though when I Googled your player it seemed to need tweaking to play certain types of disk!). However you still need some way to get your VHS onto your computer.
Thinking about it, Serif do something that should work themselves:
http://www.serif.com/SerifExtra/TemplatePages/ Product/258/183/1.htm . Maybe you could try to get them to knock some money off, as otherwise your software is no good to you. Not used the device, so I can't vouch for it. Otherwise, PC World should have something. The Hauppauge site:
http://www.hauppauge.co.uk/site/products/prods .html will give you an idea of the sort of internal and external devices. Internal devices generally tend to work better, but you will need to be comfortable with popping open your PC to install. Oh - you'll probably also need a lead or two to connect your VCR to any device/card you buy.
Re the software you use to burn your music, some such software does include the facility to capture from a card/device. Does yours have a video component? If so, try clicking it and see if there is an option along the lines of "Capture Video".