If you use windows movie maker, you’ll get .ase files, which cannot be edited with any other program. My son’s camcorder will only record in windows (ase) format .avi files, which means that I can only edit them in windows movie maker.
The alternative is to use something like virtualdub, a fantastic open source video editor which lets you choose output settings, video/audio compression and such. It even has several very powerful filters which you can ‘stack’ to produce quite sophistocated effects. You can also bring in audio separately if you wish.
Used in conjunction with blenders awesome sequence editor, there shouldn’t be much that you can’t achieve. I’ve used Adobe after effects and premier, and while they have their place in a professional situation, what’s available free is incredible.