As I made all the original files at the "normal" setting for the capture device I imagine that was It's optimum. Is there a way to verify this?
Would the secondary processing where I modified the audio and then re-saved in the same format and resolution likely have adversely affected the true video data or is that likely to be negligible? Arcsoft use their own CODEC whereas Power Director (I think) use a more "industry standard?" CODEC. Or am I talking complete rubbish
I did some digging and came up with a reasonable amount of information on your card plus a little information (and some educated guesses) about the company that sells it. First off I would make sure never to buy anything from them again. Between some questionable, not outright false, statements about their products and the supposed knock offs and their requirement to sign up for their forum before even reading any posts they seem slimy and untrustworthy.
The good news, though, is you seem to have a pretty much industry standard USB capture device. It's one of at least 3 made by different Chinese OEMs, and possibly the best of the 3 since it looks like Hauppauge sells (or sold) essentially the same unit under their brand. The key components, in terms of capture software compatibility and video capture specs are as follows:
Video capture chip: Empia EM2861
(WDM capture hardware)
Video processing chip: Philips SAA7113
(Samples full frame SD video to NTSC/PAL,Uncompressed YUV 4:2:2)
Audio processing chip: possibly Empia EMP202 2 Channel AC'97 (Dolby Digital)
or perhaps other chip supporting just 8000Hz mono
The captured video will be filtered automatically in the hardware but that's pretty much unavoidable unless you're ready to shell out $200 - $300 for a prosumer level capture device from BlackMagic Design. On the bad side the manufacturer's quality control is about what you'd expect from a low end commodity electronics product. If the sound is bad the only solution may be bypassing it and capturing with your sound card.
That option would also mean going with a different capture program but it doesn't look like ArcSoft's product is really suited to proper capturing anyway. Although it appears to stick with industry standard formats, I question the quality of their encoders, particularly for realtime encoding. Also the standard method for high quality capturing involves using an intermediate lossless codec initially and then encoding to your final format as a separate step. Show Biz 3.5 (or 5) may or may not be able to do that. It mostly depends on whether it gives you access to any VfW or ACM encoders you may have installed.
Back to the good news it looks like VirtualDub should have no problem capturing from it and also supports capturing audio through a sound card at the same time. I've never used it for capturing and I do know some people have horrible problems with audio sync, at least until they spend time tweaking some settings. It would definitely work with some great free lossless codecs which are designed for capture.
For maximum quality given your hardware that's where I would start. If that's what you want I'll do what I can to help but you need to understand up front that it could involve quite a bit of frustration in the beginning. Or it might be a walk in the park. There just isn't any way to tell ahead of time.