ok kermit heres the next answer I got :
ok,
Recording either with fraps or exporting replays from game engines,
800x600 is 4:3, and in windows movie maker the max it will do with default is 720x480 Animorphic which is not 4:3, so you'll get interpolating pixels, and random side effects,
also, you have to look at source files for encoding Windows Movie Maker isnt the best of programs, even free programs.. It lacks any kind of serious user customizable options, For example, if the AVI File you have is Interlaced, WMM will encode it without de-interlacing, and you;ll get a bunch of horizonal lines/blurs.
even for High Quality Video Editing, I'd Go with using 1280x960/640x480(4:3) or 1280x720/640x360 (16:9), Recording and Editing in the Resolution you want to encode is always best in cases of video, especially when using free programs that arent hi-end. Most Programs Like Pinnicle Video Studio 8/9 Or Adobe Premiere Pro (7.0) or Premiere 6.5 Do a Alot better at Re-sizing Video.
You could try searching for and downloading virtual dub, use that to re-size to whatever your want.
Another Thing you have to look at is what compression your Video File is Using, MPEG-4, wether it be WMV, Xvid, 3vix, Divx, or any other form, is ust way to lossy , meaning the image quality to compression ratio is just gross.., and requires more CPU Power to Encode on the Fly.
MJPEG is the Best option for COmpression during recording, it uses less CPU poer than anything, just need decent amount of ram and Harddisk Bandwidth. (I record and Edit Video Footage in MJPEG at 1920x1080i for some game companies)
WMVHD is a Good way to go for Final Encoding, but outside of the Adobe Premier 6.5 Windows Media Exporter I havent found any way of encoding them.