If you just want to play the file in Windows Media Player you just need DirectX 8 or above. (The included DVSD codec is decode-only and DirectShow-only)
DirectX 9.0c March 2008 (Windows XP, 2000)
DirectX 9.0c October 2006 (Windows 98, Me)
DirectX 8.0a (Windows 95)
If you want to edit it, use VirtualDub (http://www.virtualdub.org). It has a built-in decoder. (Remember to click video, compression, and pick a codec, otherwise the output will be the default uncompressed, which is huge; if you just want to cut use video, direct stream copy).
If you want to encode in DVSD you may have to buy a commercial DV codec (from MainConcept or Canopus for example). There may be some freeware ones out there, though I’m not sure (you could try ffdshow-tryouts - dunno if it encodes though).
Use the Panasonic DV codec. Instructions here.
(I’m not sure if it encodes too, or if it’s decode-only)