My room mates and I took a VCR and hooked the Xbox into the front input composite jacks. Then for the output, we plugged in our video camera and set it to VCR mode to be able to see and record the signal. Lastly, we split the video and left audio (white) signals to also go to the TV so we can see what we're doing as well as having some sound. Seeing as how that's going to be your 'camera' player, we then covered up the hud on the TV screen to properly judge the frame and what we want to record.
We had the composite cables, camera, VCR, and splitters to do this so it was free. Also, the quality was good for what it was too.
The lower quality alternative is practically the same thing, but hook the camera up through firewire to a PC and capture it live. We tried doing that at first, but there was a delay and a weak signal and thus, the video quality suffered. It's kind of funny, the video we made was mostly shot through this method, but a few parts were shot later using what I described above and the difference is night and day in the finished video.
