At first, I reported on this older topic, http://www.boonex.com/unity/forums/#topic/Video-comments-Video-very-pixeled-.htm
After upgrading to RC3, the video recording worked beautifully! The recorded video was very smooth and non pixeled. Great job!
What I did was check that option in the modules/flashapps under save original video while converting on. That did the trick. Although I have not compared the file size difference between saving original and converting...
Nicely done, Boonex.