HONESTECH VIDBOX FOR WINDOWS SOFTWARE
The image is still interlaced, but it is done is such a way that your playback software will make it look good. There are cards out that are Hardware capture cards(mostly internal, but some are external, mostly noticeable by the fact that they need a power source that is not the usb port), this kind of card does all the work(it has its own cpu onboard) and offers far better image quality. I find this to be a very hit and miss thing(removing the lines, but still being rather blurry). Most USB capture devices rely on the cpu to "De-interlace" and compress this video feed. The computer and even LCD TV's have to upscale the image to make it fill in all that extra resolution. The TV also has a lower resolution in most cases, while this sounds like a bad thing, it is a very good match to the video type being played. This means videos will look sharper on that screen.
This said, a CRT TV is an interlaced device(well most are) and works in this way very well. Computers do not work this way and you may see lots of artifacts(they can look like lines or blurring on motion from side to side) as a result. TV's like that you may have connected to the VCR(if it is a CRT) will only refresh every second line per frame. The problem stems from the way TV's and computers work.