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I am doing almost exactly the same as what you're asking about right now, and for the same purpose. However, I'm not taking clips from DVDs, but from videotapes. Either way, it's a time-consuming process, but I believe the following should work for you:
1. Use Fairuse to convert the DVD to Divx.
2. Convert Divx to WMV using Windows Media Encoder.
3. Windows Movie Maker to extract the clips you want.
That's basically what I've been doing (except I converted the videos to MPEG2). Perhaps someone else might have a better solution. :)
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