I am using emulation; PSCX2 0.9.8 to be precise. Older versions of PSCX2 run the game, but had very choppy graphics compared to this version. Of course, I've also got a better video card now than I used to have, which probably helps somewhat.
I can't recall exactly which settings I've changed; I think I left most at the default values and concentrated on just the graphics plugin settings. I run the game at native PS2 resolution, which turns out to be 640x448. Interlacing is on "Weave bff" to clear up a lot of vertical screen shaking without blurring the pictures. This screen and most cutscenes we'll see are taken through the emulator's built in screenshot tool.
Now, that's for static screen shots. For sprites that change quickly, the emulator saves images too slowly and misses frames. To get sprites, I'm using a utility similar to Animget. Changing the Aspect Mode setting in the emulator to "Fit to Window/Screen" is important for that. I'll be posting battle animation sprite sheets made from screens captured this way at some point.
These settings don't work well for moving cutscenes (like the one that pans up Lutz's body); those turn out choppy. I think walking sprites might be choppy too, but I haven't tested capturing those yet. I need to try some alternative settings for those situations at some point, but my initial tests for the Lutz pan are not promising.
I think those are the important settings in the emulator, but there are lots of settings! If you have a specific question about another, I'll be happy to look at it and post what I'm using.