Videos Pixelated After Conversion

You will need to increase the bit rate of the videos so they are no compressed so much. Compression takes away detail and makes videos look blocky and blurry.

Under the flashvideo settings (per content type) there is a section entitled 'FFMPEG'. In there there you will find a field for the ffmpeg command.

This will be something like:
-i @input -f flv -acodec mp3 -ar 22050 -ab 64k -ac 1 @output

On FFMPEG documentation I found this

* To set the video bitrate of the output file to 64kbit/s:

ffmpeg -i input.avi -b 64k output.avi

So you can change the command to something like the following to increase the quality.
500k should give around youtube standard quality as far as I know.
-i @input -b 500k -f flv -acodec mp3 -ar 22050 -ab 64k -ac 1 @output

The number after '-ab' is the audio quality, change this to '128k' or higher for good audio.