Get a copy of registered Fraps, and find a different video editor. (I recommend Adobe Premiere Pro.) Windows Movie Maker loves to rape quality.
Also, optimize your computer for better recording performance. This includes defragging your hard drive and GCF (game) files, reducing number of processes running (critical for Fraps), and dusting out the hardware. Since you're already encoding with a resolution of 640x480 anyway (or what it seems to be), record your footage while at a 640x480 resolution. Taking these steps will definitely improve your framerate and video quality.
Thank fully I may be getting a new video editor soon. After having run my free trial of the epic VideoPad editor, and deciding that Pinnacle VideoSpin is shit, I really did need something which worked. I don't like spending money, but I will probably register fraps. I will try out all the rest of your advice to. Not that i'll be making anymore videos for a while (as i'm sure the people here will be glad to hear, again, thanks for all your comments guys, appreciated) because of the editor issue. But thanks.
NOTE: the stuff in the brackets was sarcasm...