Lag free with EyeTV? Most definitely not. Guitar Hero II says I get about 30-90 ms using the lag calibration option. That is on my MacBook Pro 2.16 GHz using an EyeTV Hybrid. Now the lag even with Guitar Hero II, a rhythm game where accuracy is important, I can still say it's unnoticeable. So, yeah I guess EyeTV is your only option.
The picture quality is only bad if you don't use any of EyeTV's image enhancement options (which only makes lag worse) and the fact the video input the EyeTV provides are non-HD. S-Video is noticeably sharper than composite, so use S-Video if possible.