The problem with real-time video capturing is, that everything - the simulation, screen grabbing and video encoding - has to be done in real-time, which requires a lot of processing power. Even if you have a fast computer you probably can't capture smooth videos in very high resolution with high frame rates in real-time.
Therefore I tried a different approach:
Normally, when FS runs in real-time, it measures the time between two simulation frames and calculates aircraft movement etc. from that time interval. I overwrite the measured value on every frame with a fixed time interval corresponding to the output video frame rate. This makes FS 'think' it's running with this fixed frame rate, although the real frame rate can be much slower; in other words, FS is running in slow motion (some of you already had the idea to do the video capturing at half or quarter speed, and afterwards increasing the speed of the video for smoother results, which is a similar idea).
Then I grab the video frames and use the Windows Media SDK to encode them as WMV file. At least on my system so far this works perfectly. I tried to render a video in FSX at full HD resolution (1920x1080) at 60fps and watched it on my full HD projector, it really looks great!
However, there's also a downside: As FS is no longer running in real-time, the FS sound output cannot be recorded with the video, as it's speed doesn't match the speed of the video. And of course this 'video rendering' mode is not useful during live flight, but only for making a video from a recorded flight (except if you want to fly FS in slow motion
For demonstration I made a video of the beautiful PMDG 747-8i in full HD resolution at 30fps and uploaded it on YouTube:
http://www.youtube.com/watch?v=xMhevhN4S0g
If you want to see the original video in full quality you can download it here:
http://www.megaupload.com/?d=9W3E3L2Q
This video is perfectly smooth, if you should see any stutters it's the video playback!
I don't want to promise too much, for now I can only say it works great on my own system. I'll probably release an experimental alpha version of this feature soon after the first beta release of v2.1, to find out how it performs on various systems. If all goes well I'll integrate this feature in v2.2.

I don't really understand that sentence.