No, no.
.avi is not a \"format\", it is only a container. AVI stands for \"Audio-Video Interweave\" and that\'s all it does - syncs the time code of the audio and video streams. As for the audio and video streams, you can throw in pretty much whatever you want. DV just means \"Digital Video\" and is a very mildly compressed video format which can be handled and edited as though it were uncompressed. PCM is just raw uncompressed audio, like what you get on a CD. DivX is a very heavily compressed video format of the MPEG-4 family.
DV MUST be recorded as 720x480. This is what you are recording in. That\'s fine, you should be doing that. My point is that when you choose to encode to DV, the image is skewed to use up the 720x480 video space (your VHS video source is basically being fed as 640x480). When you play back the DV, your computer skews the image to fit 640x480 in real-time. But if you choose to encode to DivX, you as the author must encode the video at 640x480, as DivX doesn\'t support that sort of stuff that DV does. Also, with DivX you can encode many other resolutions combinations if you want to. With DV you cannot, which is why instead it supports pixel ratio distortion.
Note that 640x480 isn\'t necessarily the only correct resolution. Another one may be more appopriate, such as if the outer edge of your video source has image tearing and is best to be cropped. Or, if your source is widescreen (but from a VHS it is probably not.)