An unsung hero in the MS Toolkit.
It has a weird name - Problem Steps Recorder that is not obvious as a search keyword. It doesn't create a video as the output, rather an HTML containing annotated images. (On the flip side, it doesn't eat up a lot of space and doesn't lose much information).
This one ships with Windows7. To invoke, Start > Run > psr
This should pop the very intuitive UI. Here's a 3 min video walkthrough. I just learnt you can annotate issues as well.