It seems like not all larger iTunes Store videos are actually worth their new dimensions. Reader Paul did some investigating on the newly resized videos (i.e. - ones that were 320 x 240 before the new store, and are now 640 x 480), as a few seemed suspiciously like bad upsamples, rather than truly re-encoded masterpieces of H264 quality.
Unfortunately, for this investigation Paul had to reveal he is an Anastacia fan, but that isn't important right now (just kiddin' with you Paul). Engadget has put together a good post with example screenshots (like the one above) of upsampled content that looks worse than its smaller predecessors. Some of the videos look great - like Paul's Anastacia examples, but others like Madonna's and Elton John's vids ultimately take the more jagged route.
The thing I'm wondering is: who does the encoding? Apple, or the studios? This page at Apple's site for music labels interested in getting onto the store offers software called iTunes Producer to allow them to do the encoding, which makes me suspect this video upsampling issue could be the fault of the labels mistakenly assigning the video encoding and re-encoding work to some rookie intern.
This is about all we know for now; Apple I'm sure is unavailable for comment, but check out Engadget's post for more screenshots and details of what's going on here.