A simple way to convert old vcds to avi(xvid) and not lose too much video quality is by using the tool mencoder.
Download and Install mencoder:
#sudo apt-get install mencoder
#mencoder vcd://2 -o movie.avi -oac copy -ovc lavc -lavcopts vcodec=mpeg4:vbitrate=2000
Where vcd://2 points to the title you wish to decode. Most vcds have 2 to 3 titles and the biggest one being the movie. Choose the biggest title of vcd for the decode. If you are unsure what to choose, i suggest trial and error starting from 1 to any number till mencoder throws out error of not finding the title.