Fraps is absolutely terrible for video quality. Heres a few examples of videos created for a game called DOD:S using the /record command that half life provided.
http://www.trypants.com/forums/forumdisplay.php?f=195
They all have movie like quality. I'll try to find some fraps videos to compare and contrast, but the difference is horrendous.
Another pro about this is that the demos in the files are small, like 20mb and you can /replay them ingame and /record while you replay them. And when you record it creates HUGE files like 50GB big that will need to be compressed. But this way you can send demos to movie makes and stuff.
I was thinking about doing a "PVP of the week" video like this dod:s community has a "Frag of the week" video that is about 6 minutes long usually where different players from the community submit their best clips and then you condense them all into one neat little movie. They're really quite awesome, but I wouldn't want to do that with huge fraps files.
And about the servers, they already stated that they have mitigated the problem and have a team working on the problem and will have a solution asap. Besides they they also have several different teams working on expansions, and adventure packs.