> What is the best way to convert vhs to dvd?

There's a lot of different ways based on how much time and money you want to spend. It sounds like you might have a DV camera, which may allow you to convert the video using your camera and feed the digital signal to your computer by USB or firewire.

> I understand that DVD extraction to audio is lossy ...

Not always. ac3 (Dolby) audio encoding is lossy, PCM audio is not. But, not all standalone DVD recorders allow you to encode PCM.

> I searched the forums and the FAQs

Try http://digitalfaq.com to get started...

It helps to know what kind of hardware you have.