how are you planning to put this on VHS? You can ask about how it will look, but nobody is going to give you a better answer than you can give yourself. take your sample movie and export to VHS, and look at it.
As it turns out, the format of DV is a tricky beast. Neither iMovie nor Quicktime can actually manage to display it at full quality AND framerate. So it WILL in fact look slightly better when exported back to tape. On the other hand, DV is lossy (as opposed to the Animation codec, which is lossless), so it is not a very good choice for showing the small text common in computer applications. In the same vein, if you put a computer display on a TV screen, it's going to look pretty blurry anyway.
for your purpose, I would recommend you capture with Snapz Pro at a resolution of 320x240 (follow the cursor around the screen). Then you can edit your movie in Quicktime Pro, with cut and paste (iMovie can't really do much more than that anyway, can it?). To make fine cuts in Quicktime pro, I use the left and right arrow keys to move frame by frame, and then apple-B (edit->select none) to zero the selection on were the cursor is.
printing to VHS is up to you, you might have to export to DV to use iMovie, or if you have access to a power/ibook, or other computer that can display on a tv, you can bypass iMovie and the whole DV mess, by displaying the quicktime movie at full screen and just recording that with a VCR. Then, when you're ready to save the whole thing digitally, it will be easy to export to VCD with Toast's VCD export plugin.
Now, when you tried exporting from iMovie to Quicktime, I'm guessing you used one of the default settings, which use either the h.263 or DV codecs, which both suck for quality. I don't know why they chose these, but you can choose a better one if you click the various expert buttons....