So here is what I am doing to achieve best possible quality encoding H.264:
Video Codec H.264 Mencoder
Keep Height in Autosize, height set from calculated height in Autocrop (Filters Tab - deduct Top and Bottom crop from total)
Set width for 720 to calculate best bitrate on the "Best" button and return to setting for Keep Height. (As the souce only is 720 px width, no need to calc for higher bitrate)
Framerate: Set to the proper setting
Audio Codec AAC
Audio bitrate 128
Channels Stereo or Mono, depends on whats appropriate
x264 Deblock On
Brightness and contrast corrected, if necessary.
Use Cabac On
Use B-Frames On
Two-pass encoding On
Scaling Method Bicubic Spline
ME function Exhaustive
I-frame interval 120
The result isn't bad, but I still think the picture comes out unsharp, too fuzzy looking.
Any suggestions to improve that result?
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Maybe the "best button" is giving a lower bitrate than it ought to be. Or the source itself is a bit blurry. Post some shots of it before and after.