Something is wrong somewhere. The capture systems for miniDV in versions 2 and 8 virtually identical. The video is not in any way changed between camcorder and computer. You can capture in version 2, version 8, Windows MovieMaker or WinDV and your AVIs will be identical.
You say you ensured that your version 8 project is set up as 4:3. I also note that you say the PREVIEW is what looks distorted.
Try taking the video in version 8 and Share/Personal Computer to save it as an AVI, WMV or MOV. Have a look at that and see if this output looks distorted.
If it, too, is distorted, we'll know there's something wrong in the program settings. If not, we'll know that something is wrong with your preview window.
Finally, you don't say if your video is squished long or squished tall, but that can make a difference too. If, for instance, your video is squished tall in your preview, note if there are black letterboxing bars along the sides. If so, the problem could be in the project settings you used to capture or even shoot the video!
Thanks for the reply Steve. If time permits I'll try your recommendation but time is the issue. I think I've already invested 6 to 8 hours trying to solve version 8 problems. I'm probably going to buy a Cyberlinks product and hope for the best. I feel sorry for those people who are on a budget and unknowingly invest money in PE 8. This is a hobby for me and I've owned a video camera since 1982. I started video editing around 1996 with a high end Adobe product Premiere 5.0 at a cost of approximately $1,000. It was the same software used by motion picture studios at the time to run first cuts before tampering with the actual film footage. I've used many editing software products since the and have never had the issues I'm now facing. PE 8.0 only cost me $80.00, so it's not the money, it's all about the time.
When you Rt-click on the Program Monitor, what is Magnification set to? I use 100%, in lieu of Fit.
What are your Playback Settings?
In PrPro, one also has a Quality setting, where the user can choose Draft, Auto, or Highest. I do not know if PrE 8 has added that setting, but PrE 4 does not have it. If there IS a Quality setting in PrE 8, explore the Auto, and the Highest settings.