I use Fraps and Movie Maker 2.0
Pay for Fraps to remove the watermark. Don't be a wanker and pirate it, it's a product to support.
Movie Maker 2.0 is free with add-ons that don't cost much -depending on the add-on.
Media Encoder 9 will allow you to create custom profiles for saving your movies in different screen resolutions and quality levels.
Once you download/install Media Encoder 9, click START, find Windows Media, Utilities, then Windows Media Profile Editor.
Opening Screen:

Name, Description -user input. Click Video, Audio -these are the default options and seem to work fine.
Click "ADD" in the Target Bit Rate area. Enter Value. 1.0M, 2.1M, upto 30M (30 creates a very large movie).
2.1M makes good movies, 15M are good quality, but LARGE!.

Audio Format varies. Video Size: If you play at one resolution, enter those values. Leave other values default unless you know what you are doing.

Finally, save your profile.

With FRAPS you can output your movies to any folder; ie) X:/FrapsFootage where X is whichever harddrive you choose.
Open Movie Maker 2.0 and drag/drop the AVI file into Movie Maker, then drag movie from "Collection" to the Video bar below.

Save your Movie

Name your Movie

Save Movie Settings: OTHER: Find your profile.

I chose the 15Mbps profile. It'll be a large video. 28s of video will end up about 55Mb.

I've recorded a few movies using a 1024x768 resolution with 2.1Mbps, 1280x1024 with 2.1Mbps, 1024x768 with 15Mbps (half the HD-AVI of 30Mbps) -all custom profiles made with the encoder. The 2.1Mbps keeps file size reasonable; a 2m11s video of mine was 30Mb when done. 15Mbps will make the same 2m11s video into 110Mb, but much higher quality.
Check out these:
SamazRalan's Youtube -low res
Old Eve-Online Movies -all are 1024x768
Old Atlantians (high-res) large file (RightClick, Save AS)
Doom of the Aliens [7DS] large file -RightClick, Save AS)
Hope this helps you.