Using VirtualDub to capture screen isn't a good idea. Capture doesn't work properly under Win7/Vista. I can recommend Debut capture for this purpose. Also i must say that using those old crappy codecs such as divx or xvid or wm will dramatically lower the quality of your video (especially in the case if you are planning to do some montage and make a movie).
Here is the quick schema of how this should be done properly:
1. Capture video using uncompressed or lossless codec.
2. Edit it in the video editor.
3. Export resulting video using uncompressed or lossless codec.
4. Compress your video using some good 2-3 pass codec.
5. Merge your video and audio into a single file container, such as .mp4 or .mkv using some MUX program.
As lossless codec i recommend Lagarith or HuffYUV.
As final video codec i recommend x264 or Nero AVC, as audio - Nero AAC.