Neat Video will definitely help with noise reduction but it really depends on what is causing the poor quality is. If there is tearing or other sync problems there is nothing you can do after the fact. You need to capture the tape with a device that has Time Base Correction to clean things up on the way in. The fact that you captured a low quality VHS as more low quality MPEG2 makes matters even worse. The MPEG2 encoder does not handle noise very well at all and has probably made the original VHS footage even worse than the original.
You really want to capture bad VHS as DV AVI and clean it up before you render to MPEG2. If you want to capture directly to MPEG2 you should use a device that has the ability to do some noise reduction during capture. You have your work cut out for you.
~jr
http://www.johnrofrano.com
http://www.vasst.com