Thats right mate, thats the only way i know of. It is best to get fraps set up before you start.
This is exactly how mine is set up to record. (bear in mind i do have a shit computer though)
In the settings of fraps, limit the frame rate to something like 30fps.
In lfs, turn haze effect off and also limit the frame rate to 30fps.
I always defragment my hard disk before i start doing any recording, as a fragmented drive can and often does cause really bad fps drops when recording, mine used to go from the limited 30 down to 2 or 3 fps, which is basically a slide show.
I also slow the replay down to 0.5 speed, and then import the recording into movie maker and then speed it back up, this helps to get rid of any slight jumpiness in the recording.
Fraps works for some people, and is terrible for others. My fraps always recorded like crap since i installed it, but i tried to record something last week and it came out perfectly fine.