Whoops, I swear I read it, but my mind read it the wrong way.

I'm going to lay the blame on this one mostly on MS and/or windows CODECs. I know they've done a windows update or two in the past that had some impact on my installed CODECs and some files no longer play on my default preferred viewers anymore. However I can still open them in a video editor and then save-as whatever format I can get when I'm done.
I know a number of people use WMM because it's there, and mostly it works. While I would recommend getting something a little better, I totally understand if you can't. Have you checked for the latest version of FRAPs lately? They might have fixed/tweaked something that would resolve the issue.
Troubleshooting list, off the top of my head:
1) FRAPs at the latest version?
2) video settings in FRAPs? Try another compression and see if that works?
3) VMM up to date? Were there any windows updates you installed around the time it stopped working?
3a) Got any old files you know worked that you can reimport into WMM as a test? That would confirm WMM and not FRAPs
I don't know about how WMM is integrated into windows, but if it has an uninstall/reinstall function that might be a way to go. If you had a CODEC pack before this happened, can you reinstall that CODEC pack?
Other than that, maybe some other software might serve you better.