is it worth getting an external hd with a fire wire?

[blumpkin blownuts]

You use FRAPS to capture video. FRAPS generates an AVI file using their own codec, FPS1, which is a very-low-compression codec. This means that if a short video is taking hours to generate, then your bottleneck is probably your disk transfer speed, not your CPU.

If you already have a 7200rpm internal drive, you don't need another, unless you're out of disk space and can't clean up enough free space. If that's the case, go ahead and get the external and use it as storage, then use your existing internal drive to save captured videos. Also, how often do you scandisk & defrag that drive? A highly-fragmented drive will greatly increase the time it takes to save large files, such as FRAPS output.

As maks said, video compression and encoding doesn't use the video card at all. It only uses the CPU, RAM, and disk.

It looks like FRAPS doesn't allow you to set the following options, but your container (mpeg, mp2, mp4, avi, wmv etc) and especially your codec (divx, xvid, h.264, FPS1, etc) will make a big difference, independent of your hardware.

The way it works (in general) is this:

Less compression (e.g. FPS1) --
less work needed by CPU to generate output video file
higher filesize and more time to write output video file to disk
higher visual quality

More compression (e.g. divx) --
more work needed by CPU to generate output video file
lower output filesize and less time to write video file to disk
lower visual quality

The key point to remember is that as long as you use an internal drive (or newer e-SATA, or USB 3 externals) then your speed will be limited by the CPU output, not your disk transfer speed. But this is generally only true for highly-compressed output.
For formats with little-to-no compression, like Uncompressed AVI, RAW video, or FRAPS AVI - these require very little CPU work, so the time it takes to write the file to disk is limited by your disk transfer speed instead of your CPU.

Very-low-compression formats are too large in size to be useful in most applications.

That's why my first suggestion is to get rid of FRAPS, and instead use a video capture program such as CamStudio, which outputs a variety of highly-compressed outputs. Get this program, and in video options set it to use DIVX compression. Divx is the most balanced codec in my professional opinion, as the output has low filesize, decent quality, and the algorithm is relatively fast - meaning that you don't need a high-power CPU to generate it in a timely fashion.

If it's still too slow, and you have a clean internal hard drive, then you will need to upgrade your CPU.

I've been ripping DVDs into video files for over a decade. I've also worked as a video editor in TV news for 3 years.