the "rc damper u put on" is like a "low-pass filter" with a capacitor that has a high ESR... 
because: the LM35 has some output resistance...
the resistor in that recommended rc damper reduces the stress on the LM35 when it is powered up...
i dunno if arduino can do FFT...
lets look in the playground: 
http://arduino.cc/playground/Main/TutorialList
there:
http://www.arduinoos.com/?p=1022