Hardware Transcoding - Quality Issues

Why is the quality worse when using hardware compared to software transcoding?

Does anyone have an answer for this? If I turn on hardware decoding, the playback is blocky and grainy… Turning it off returns the playback to normal quality.

Because software encoding is always better than hardware encoding. Hardware encoding is a work-around for those with crappy CPUs. If you have a good CPU - use it.

Plug this into Google:
hardware encoding vs software encoding

That should keep you busy for a while, but in the meantime heat up those CPUs if you have them… if not… well… it is what it is.