I tried a bunch of tools and settled on SimCap to grab video from the simulator, and iSimulate to provide a more natural way of creating touch events (compared to using a mouse).
__________________ Chromixa - 'Jigsaw of Light' puzzle game
1) Downloaded SimFinger which does the nice overlay and mouse pointer
2) Run it on top of the simulator
3) Record with iShowU
4) Use iMovie to add effects and trim to size.
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