I suggest MainConcept H.264 Converter, this is what I use to lower video sizes.
I haven't used Fraps and MainConcept in such a long time so I don't remember if it automatically resizes it, but I'm pretty sure that MainConcept does that for you.
I've had a 600MB file converted into 20MB, and I could still see exactly what was going on without having to squint or hurt my eyes trying to see what was going on.
I'm using the x.264 encoder with F.E.A.R. videos I've captured with fraps.
I'm recording @ 512x384 (which is half rez while playing @ 1024x768) and it takes the 5GB of capture footage (~15 minutes) and turns it into a lovely 66MB file.