Here are the settings I prefer.
Set Fixed Region to a 16:9 Fixed size - e.g. 1024x576 (or if you need larger use 1280x720
Use CamStudio Video Lossless Compression and best compression + auto adjust
Use K-Lite Codec MegaPack - see external links page for download link. You can then directly use the Lossless compression AVIs in MovieMaker
Configure MovieMaker for 16:9 format
Accept the 'recommended' resolution option. This is usually 1280x720 or 1920x1080 if you used the 1280x720 to record with). If in doubt always accept the recommended resolution.