Your hd read and write speed is probably slowing it down. Fraps makes very large files, and most hd's struggle transfering all that data. I have a sata hd and it's never been a problem, but I've been compressing the avi's Fraps makes with divx and virtual dub to conserve space. This would solve your playback issue, and make the files easier to cut into a decent video.
I play at 1024, and set Fraps to record at 1/2 size. When I get a bunch of recordings, I'll fire up virtual dub (free download) select the divx codec (free) and run a job on the entire directory. With divx set on 2.5 I see about 10x compression and almost no visible loss.