To put it another way, it's the ONLY option, I guess technically it isn't an option then.
However it's generally thought that capturing HDV as HDV and then using Vegas to downconvert to SD gives a better result than doing it in hardware. It does take more time though.
You didn’t say if you wanted HDV or DV. If you want DV, then an AVI file is the only choice. If you want HDV then M2T files and the internal capture are what you should be using.