I played around with VLC again, and found that you can actually change the resolution. You can also adjust brightness, white balance, saturation and a lot of other things. It also has a snapshot function, so you don't have to do a screen shot to capture stills. Took some more pics inside my trusty P226 and I believe the quality came out a little bit better this time, but this is probably as good as it's gonna get. The resolution can only get as good as the camera allows (640x480), so I figure that it won't be much better than what you see here.
Still ain't bad for a $9 camera, is it?