Whatever video processing software you're using, you've got it set to far too low of a bitrate, which is why it looks like an overprocessed jpeg rather than a crisp video.
Like in Adobe Elements Premier, it asks if you want to share for "disc, online, computer, mobile phone", etc, select computer, then select Adobe Flash Video and use the "F4V-HD 1080p" preset. (The option to go Online -> Upload video to YouTube might work too but make sure you pick a good preset, like "High definition video for youtube".)
Also make sure you have FRAPS set to full screen if at all possible. Having it save in half resolution results in crap videos.
If you can monitor your CPU while playing and recording, see if one of your cores is tapped out at 100%. If it is, then overclocking will help your performance when using FRAPS. (There are also FRAPS alternatives out there now that may well be better. I haven't tried them and don't remember what they're called.)