VMware has a nice option to record your OS guest usage to AVI file. However, in order to playback this AVI one most have VMware Movie Decoder installed.
I wanted to convert this to more common format so that receiving party does not have to install the mentioned encoder. I was happy to find on Kelvinism.com instructions for Linux for converting to Microsoft AVI and then to FLV:
mencoder -of avi -ovc lavc movie.avi -o movie2.avi
Converted AVI was about 40%smaller in size with acceptable degradation of image quality. Zip shrink additional 40% on file size. Nice.
P.S.I also tried converting AVI to FLV:
ffmpeg -i movie2.avi -r 12 -b 100 movie.flv
but produced FLV was even larger than original AVI and had tremendous degradation of image quality.