Ok I think we solved it. When installing the Bender 32 bit driver on a Windows XP SP2 system it does not replace or add the driver file bender.sys to the Windows driver directory. Even if you point the Add Hardware wizard to the file it still doesnt pick it up.

So what we did is to copy the file from the Pinnacle Shared Files directory to the Windows\System 32 directory. Restart the pc, on start up go to device manager and right click on the device, click on Update Driver, Choose Advanced to look for the driver yourself. Dont tell it to search a directory for the files, instead tick the box at the bottom to add driver from a list. Double click on Sound, Audio and  . . .   click on Pinnacle and pick the Pinnacle AV/DV 2 (this is the one I picked at least and it worked).

The driver will be replaced with the right driver file. The device now has the option to capture and output both Audio and Video and shows as a 700PCI. If anything changes I'll post. 

Just by the way, this was done on two pc's. Recently formatted, both have Windows XP SP 2 on.