Download and install VirtualDub and FFDShow. Linux and Mac users first will need to install WINE (or Wine is Not an Emulator) (see Resources).
Launch VirtualDub and import your source video file by choosing "Open video file" from the File menu. Choose "Save Image Sequence" from the File menu and select an output directory in the dialog box that appears. Click "OK." VirtualDub will export each frame of the video as its own still image file.
Download, install and launch GIMP, The Gnu Image Manipulation Program. GIMP is a cross-platform freeware graphics editing program.
Choose "Open" from the File menu and browse to the directory where you exported the image sequence. While holding the "Control" key, click on the file names of all the frames you want to edit. Release the "Control" key and click "Open."
Hold down the "Shift" key and press the "+" key until the zoom level reaches 800 percent.
Press the "B" key to activate the Paths tool. Choose a place on the outermost edge of your character's body and click to create the anchor point for the beginning of your path. Moving clockwise, continue clicking along the pixel border of your character and the background. When you have outlined your character completely, click on the first anchor point to complete the path.
Right-click and choose "From Path" from the "Select" menu on the floating menu that appears. GIMP will make a marching ant selection of your character from the dotted line path you created.
Right-click on the "Background" layer in the Layers dialog and choose "Add Alpha Channel" from the menu that appears. This makes your image file capable of transparency.
Choose "Invert" from the Select menu and press "Delete" to erase the background, leaving only your character. If you successfully added an alpha channel, you should see your character on a checkered gray background. GIMP uses a gray checkered pattern to denote transparency.
Choose "Open As Layers" from the File menu and browse to find the static background of your choice. Select the file name and click "Open."
Drag the static background below the layer with your character in the Layers dialog.
Choose "Save" from the File menu and save your image as a JPG.
Repeat Steps 5 through 12 for each frame you opened in GIMP. When you finish, you will have a series of still frames of your character on the static background of your choice.
Relaunch VirtualDub and open the first in the sequence of edited frames. VirtualDub will recognize the file type as a still and automatically import the rest of the image sequence.
Select "Compression..." from the Video menu and choose "ffdshow Video Codec." Select "MPEG-4" from the Encoder drop-down list, "one pass - average bitrate" from the Mode drop-down list and set the bitrate to "1000." Click "OK."
Choose "Save as AVI" from the File menu and click "Save." VirtualDub will encode your editing image sequence into a video of the cut-out animated character on a static background.