With a USB device you're going to be somewhat limited compared to a PCI card. I'd recommend dscaler for stills since it has numerous settings and adjustments, and it's free.
http://deinterlace.sourceforge.net/
There's other software out there, but I'm not too familiar with them so maybe someone else can recommend something they know.
For recording (capturing) video you really have more options than I can list here. Here's a good starting point:
http://www.videohelp.com/capture
For vids I like to record to dvd in HQ mode then rip to avi or mpeg for best quality, but capturing using a card works fine. You can use Nero, Windows Movie Maker (makes wmv files only), or some other video editing software from Roxio/Sonic or Cyberlink.
For HD locals you need:
1) Local HD broadcasts in your area
2) HD tuner card with ATSC and QAM
3) an off air antenna or HD cable service with unencrypted local channels
For HD programs from cable/satellite it's a slightly more technical so for simplicity I won't go into that.