So I set out to look for an Open Source/Freeware solution, and I've found one! VirtualDub coupled with VH Screen Capture Driver works like a charm!

First you need to download and install VH Screen Capture Driver, then you start up VirtualDub.

In VirtualDub you do the following:

Step 1:  Switch to Capture Mode

Step 2:  Select Capture Device

This is why you need to install VH Screen Capture Driver, before VirtualDub, otherwise you won't have the Screen Capture "Driver".

Step 3: Set your capture file

Choose its name and its location.

Step 4: Configure the capture devide / filter

You need to config VH Screen Capture Driver in order for it to run correctly.

Press "select" then put in your current desktop resolution in Width / Height. I'm running my PC in 1920 x 1200 resolution.

And that's pretty much it. Didn't cost a cent!

You can record uncompressed audio/video and transcode it later:

or you can choose to expirement with those setting to your best liking! I personally record uncompressed and transcode it afterwards.

Enjoy!

Edit: According to some users, this method does not work with Windows 7 and Windows Vista.

Addendum 18.08.2010:
If you are a Windows 7 user, I suggest you use Fraps to record your desktop. Fraps has the ability to record your Aero desktop, which is awesome. No more hassle. Start Fraps, and start recording.

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