You say the first few seconds are pixellated? Does this occur when you watch the same video a second or third time? If not, it would seem that you are seeing the pixellation as part of the process of loading up the video and establishing playback.
Hopefully others here with more experience in this area will offer better advice.
I am interested in this subject. Twitter expects Maximum file size is 512MB for TweetVideo, but you are able to upload a video longer than 2 minutes and 20 seconds. I can control the length ok but it's file size that gets me. I don't know what to do to a video to make it smaller in size. I just accept default settings.