check out the thread i made about it (should be on the front page of studio - capture somewhere) i had a similar problem i think..

 try only splitting the video link (i.e. the yellow one from ur xbox) and split that with a NON-yellow cable into the dazzle, then just plug in the audio ones straight from xbox to your tv as u dont need to record sound (unless u really want to)..

 then download windows movie maker and follow the steps at the bottom of my thread, hope it works for u....

no idea about the lag though im afraid

edit: also dont use HD if possible i dont think it works with HD, just use red/white/yellow