1. Ripped the DVD to .vob files with DVD Decrypter
2. Used AVI Synth to make the d2v files
3. Used the following script to convert the files in VirtualDub
LoadPlugin(long list of sources)
Telecide(order=1, guide=1, post=4)
Decimate(quality=3)
I've tried adjusting the order from 0 and 1 and I don't believe there is any improvement. Anyway, the interlacing is unbearably bad in my final product. You can watch what I mean here (15mb avi divx) ...
The below image is a screenshot from my video, after being exported as an UNCOMPRESSED avi from premiere (frame taken with virtualdub):

The next image is the same screenshot, but from my source MPEG file, after being converted. It looks slightly cleaner, but few the third image before judging:

A few frames later, you can see how bad the interlacing is (again from the converted MPEG file):

I've also tried the following script instead, as per a guide my friend picked up at a convention...
MPEG2Source(long list of sources)
Telecide(1)
Decimate(5)
AssumeFPS(24)
LanczosResize(848,480)
My source is the Trinity Blood DVDs (American) and I'm pretty sure the source is interlaced. DGIndex indicated that the file was interlaced (Frame Type: Interlaced), and I checked it myself.
What's going wrong here? What do I need to do?