There's no easy practical way to get the output of VR into the PVR card for it to encode, and even if you did you through the process the PVR would arguably produce lower quality encodes than a decent software solution.
All of Hauppauge's PVR encoder cards are only good at single pass CBR encoding. When it comes to VBR encoding, they have a very short rate averaging window so when the video requires the rate to spike up, there has to be a coresponding spike down fairly shortly afterwards. This leads to noticable damage to the picture (I'll make up a sample if you like).
Even when CBR encoding, there is nothing particularly flash with the results. If you need a real time hardware CBR encoding, the cards are OK, but if need VBR and have the time, software beats them hands down IMO.
I also found out that ATI new "TV Wonder Elite" is using some new 'state of the art' chipset, Theater5. The card offers two video paths, uncompressed and compressed/lossless, whereas Hauppage only offers compressed/lossy.