Video formats and harddrives for Youtube.
 

So My plan is to make a channel on youtube and upload gameplay to that. Im no god amongst computers and I've been wondering what the best format is to upload to YouTube. I have 0.70 mbit upload speed so I can't upload files bigger than 600 MB's since it will take ages. I've tried changing formats on a clip that was originally 3.1 GB's and .avi into a 360 MB's .wmv file.

Can I further compress the file without getting worse quality?

I have also heard some talk about recording to a separate hard drive, I have one 250 GB one where I have the OS and my everyday programs installed, my other one which is a 1 TB one where i have most of my games and I've planned to record my gameplay to that. (I got Bandicam/MSI Predator on the OS harddrive).

So what would be a good change to the way I handle things?
(note: my current screen is at 1680 x 1050 resolution and I want to upload it in 1280 x 720)

Thanks! :)

I use fraps & adobe premiere pro for my editing, you'll always want a second HDD to record on, although the file sizes will be huge (2GB+ for 5min of game play) but after rendering it in h.264 in a mp4 container in premiere pro 10min of 720P gameplay comes to around 500MB