After reading a little bit at the AVI_IO website, when you play the video in Windows Media Player (6.4, to be exact - mplayer2.exe in C:\Program Files\Windows Media Player\), is the speaker icon at the bottom-right-hand corner colored in or greyed out? I'm wondering if maybe AVI_IO is possibly writing the audio to a format that the computer can't read (even though it said it writes to PCM, which any computer should be able to read), or, and this is what I think might be happening, what you hear while capturing is the soundcard output of the computer, which AVI_IO states on its website that it doesn't use (I'm not sure if they mean that with just one specific capture device or period). In either case, using different software may fix the problem.
As for Progressive capture, I'm actually not sure, to be honest. I've never used VDubMod to capture video. My only experience with capturing analog video was with a VCR hooked up to the Mac that was in the lab at my college. Not to mention it also captured through Final Cut Pro.
Generally, though, the option to capture Progressive or Interlaced footage would be part of the capture card's configuration, I would assume. VDubMod might have an option to do it after selecting the 'Capture AVI' feature, but again, that's shooting into the dark. If it's capturing from VHS or some other analog source, though, the Progressive/Interlaced switch would definitely be in the capture card or in the capture menu dialog. VHS is natively Interlaced, so it would take translation hardware or a special option in the software to produce it as Progressive correctly. I would surmise that a VCR output is automatically treated as Progressive, though.
Here's a couple of screenshots: one is interlaced, the other is progressive. Interlacing artifacts show up as nasty horizontal lines when played on a computer (on a television, the lines won't appear). If your captures have none of the horizontal lines, then it's progressive (or your computer has some really weird way of treating interlaced video).
