Encoding 1080i on the fly

I hooked my motorola Cablebox/DVR up to my computer via firewire and can now watch and even stream HDTV across my network. I recently recorded the Rush R30 concert off of INHD which comes across at 1080i. I am trying to get it over to my PC in some kind of mpeg format but it seems my A64 3500+ is not up to the task of encoding it on the fly because the video is a mess no matter how I try to encode it. Is my only option to dump it to the disk in a raw format then do the encoding afterwards? Is there a cpu that can encode it on the fly or am I better off just grabbing a large hard disc and using it to store the raw video then encoding it later? I only ask about the hard drive because I have like 30GB free on my machine at the moment. I am a complete newb at this so any advice would be appreciated.