If you want to record through your microphone, you can go to the Movies tab and check the radio button that says "Use Windows input", and then double-click the volume icon on your taskbar to bring up the Windows Mixer. Go to Options > Properties, toggle Recording, click OK, then select which source you want to record from.
supersonic45, I have been able to open Fraps clips fine in Windows Movie Maker. Make sure you have Fraps installed on your machine, as the required Fraps 1 Codec is included with the installation.