Try dragging a clip from your project window to the new item icon at base of project window. This will create a sequence utilising the clips properties.
As you have not provided details of the black lines I can only assume a possible aspect ratio issue so the above may help you out there.
As for your encoder issue... if you have corrected the above then try an export from the encoder and select the match sequence settings.
This should get you on the way to solving your issues. If none of this works you need to provide more info as to exactly what your poor quality exports look like etc. i.e. does it look like interlacing issues? or frame rate issues or a possible quality switch issue etc etc. We need to know more details to help.
Thanks for the reply
I did what you said (dragged the clip to the new item icon) and it seems to work. There are still black lines, but they seem to go on full screen mode.
I have taken the liberty of uploading just a dummy clip to YouTube to show you the extent of the degradation of the quality: (sorry that its a WoW video ^^)
The frame rate seems fine, but the quality is far poorer than that of the original Fraps. I dont think its an interlacing problem either (although I wouldnt know an interlacing problem if I fell over one)
Hopefully that helps
It appears your video has been removed... did you try an export using sequence settings?