Ok the best so far is the 640x480 resolution using the codec:
.wmv
I thought it stood for windows "movie" video, but I think it is "media" rather.
This video your watching is set at even a high res: 800 x 600
Trial and error still continue. This time I am using Windows Movie Maker with the high quality settings. The only change is the fact that I am no longer using any compression when I capture the video.