What you see in the capture window is not necessarily representative of what the signal actually looks like. That monitor is designed for viewing content, not for quality control. To be sure you're seeing the signal correctly, it has to come out of PP and onto a calibrated TV.
Having said that, PP captures over FireWire, and doesn't alter the signal at all. It's a straight bit-for-bit copy of the data to the hard drive.
The only way to capture MPEG is if the signal is coming from HDV tape, and even then only because the camera itself recorded it in MPEG. Other than that, PP captures a DV signal.