If you make it straight into an uncompressed avi using 'startmovie ipwnubz avi' then it should be fine. I think using the source engine to do demo > compressed avi is a bit cruddy though.

Like oggy said, go for the frames:
startmovie ipwnubz
playdemo awandeag
stopmovie

This will give you a whole lot of individual screenshots of the demo you played, you can crank your settings up to max even if you get a low FPS in game. It doesn't matter as it does it frame by frame so it will just be a tad slower. Use VirtualDub or SonyVegas or whatever to compile the frames and audio wave thats created and bobs your uncle!