Check the command used to convert, they allow changing bitrate, size etc...

If you know what bit rate you need, you can also do the same change in the convert command in include/settings/video_conversion.php

Code:
$config[mencoder] $video_src -o $video_flv -of lavf -oac mp3lame -lameopts abr:br=56 -ovc lavc -lavcopts vcodec=flv:vbitrate=500:mbd=2:mv0:trell:v4mv:cbp:last_pred=3 -srate 22050 -lavfopts i_certify_that_my_video_stream_does_not_use_b_frames
We have video bitrate of 500 and audio bitrate of 22050.

You can try increasing the video bitrate for better quality.