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This depends on what your most concerned with. If it's picture and sound quality, then you'd be better off with a digital camcorder. If it's affordability of the unit and accessories (tapes, batteries, etc.) then this Hi8 camcorder might be the better pick for you.
You would be best off getting a digital recorder that can provide a better audio quality.
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The difference would be about the same as the jump from VHS to DVD (if it's a miniDV camcorder) or from VHS to bluray (if it's a 720p or better digital camcorder.)
If all you're looking to record are small increments of time, then a flip recorder would be a good option. However, if you want your videos to be higher quality to watch, then a more advace camcorder would be a better option.
A good camcorder has a better picture quality than a bad camcorder and just because it costs more does not necessarily mean it is the better camcorder, the one that costs a hundred may be better than the one that costs 600.
I would recommend Digital Camcorder Cameras only if you are serious about taking pictures. If you are new to picture taking, purchasing something like this may be too advanced and purchasing a regular digital camera might be the better option.
The quality of the digital camera will give you much better quality compared to a disposable camera.
If you want a cheap digital recorder, look around and ask an employee at an electronic store such as Best Buy. If you are looking for a decent quality digital recorder and don't want to spend too much money, ask around for a used digital recorder. Sometimes you can find deals on near mint digital recorders for a fraction of the retail price. Also try to find a digital recorder that has full HD quality. These are generally better, but you may want to stay away from these if you have a tight budget as they tend to be a bit more expensive.
I don't know that it is necessary to have a USB recorder, but a digital audio recorder of some type is preferable over traditional cassette. Yes, USB microphones are much better with audio quality than traditional microphones. The snowball microphone is one that is preferred by many professional podcasters.
The quality of photos on digital cameras is technically better, but most of it comes down to your understanding of photography. As you gain experience with photos, you will get better results as you understand what to focus on, with film or digital.
A DVD HDD recorder is better than a VCR, or a simple digital DVD recorder. Nothing can match a DVD HDD recorder's ability to pause and rewind live TV. If that's something you want, a DVD HDD recorder is the only way to get it with currently available technology.