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I have some videos that 640 x480, others 320 x 240, and others shot in HD that are larger sized.
Does it matter what player you are using? I have used JW player and others.
For web video you should be deinterlacing it if its interlaced. The video you often see with those horizontal lines that crop up during fast action have not been deinterlaced which causes that affect. Note that deinterlacing is a destructive process and should only be done to video intended for final distribution and not to your source.
Having said that one of the most important factors in getting good encodes is having good source material. WMV and highly compressed AVI are not good source material. As the saying goes "garbage in, garbage out".
Now I know you're thinking but of course but let me explain a little further, although it may not look like garbage when you're viewing it highly compressed video is just that. I'm most familiar with DVD video so I'll stick with that as an example from a test I posted on a video website, these principals apply to any type of video you are compressing.
If you start with a high quality DV-AVI and then compress it into a 6000kbps MPEG2, visually these two videos are not going to appear much different even if played on identical TV's side by side.
However lets say we encode our video from DV-AVI to 3000kbps, this is way too low bitrate so we'll get a large amount of macroblocking but it won't be really bad.
Now if you take that 6000kbps video and encode it to 3000kbps the results are going to be unwatchable although its an identical file to the one encoded directly from the DV-AVI, the only difference is it went through two encodes.
You need to start with a good source if you want good results. Encode it once and only once from that source.
That is, if your AVI files are 640x480, you can get decent results if you are converting to, say, 320x240. But at the same resolution, you are always going to have some loss of quality - sometimes considerable.
Go back to a cleaner source.