How can I resolve poor Flex video quality with Red5?

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I am using Flex for displaying videos streamed using the Red5 server. Basically i have two perspectives - one who relays and one who receives the broadcast. On the Flex side, in the video display, the video quality is good but on the receiver side it appears pixelated. I can't find the cause. Does this have anything to do with Flex encoding of videos or any Red5 server settings? My bandwidth is more than adequate, and my camcorder quality is good.

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Check flash.media.Camera class' setQuality method. Flash runtime uses compression based on quality parameter, and it achieves this compression by pixelating the video.