It looks like we're going to have to agree to disagree. You keep describing things that in my opinion (although I personally can do them) are not simple, and then claiming they're simple e.g.
"It's not that difficult to find software that'll output to a variety of formats." and
"OK, so it's easy to produce decent quality video in a range of resolutions and formats."
I simply can't agree with those statements, and think the paragraph that precedes them would scare off most users of Moodle, even most users of video in Moodle, so we're clearly going to disagree about anything else that starts from that assumption. Just using the phrase "rushes" places you in a different category from these users, never mind the technical stuff.
I want users to be able to easily upload a single H.264 video file and have it viewable everywhere. I have veteran ITN and BBC cameramen in the next office and it's all they really need too. Everything else is a bonus, and should be added in a way that doesn't make the basic stuff harder or more confusing. Possibly in a completely different activity module if the two use cases diverge sufficiently.
On transcoding, H.264 (and AAC for audio) is a good enough codec that you can make visually/audibly lossless conversions of any other format, even if you use a sub-optimal encoder. Certainly anyone capable of using the tools you mention in your first paragraph will have no problem, and I'd assume it would "just work" for most other people too. One step of conversion just isn't enough to make a noticeable difference when the output format is H.264 (or similarly advanced).
Look at Youtube, which isn't exactly renowned for its video quality, since it aims for broad access instead. Everything uploaded there goes through an extra encode step, and it's got video from all sorts of crazy sources (old phone cams, digitized VHS, people filming their televisions with tablet cameras) but generally if it's noticeably poor quality it's because the original was poor quality, not anything to do with the conversion Youtube does.
But, even assuming that wasn't true, what's the alternative? Putting the original MPEG-2, WMV or whatever file on the internet? It's simply not going to work. And suggesting people provide versions in multiple codecs, and multiple sizes seems to contradict warnings about conversion losses.
This conversation has gone in all sorts of directions. My original aim was to simplify life for people worried about what codec to use, with the good news that you only need one. Pushing the boundaries of tech is always going to be exciting for those that are enthusiastic about it, but some people just want to get a simple task done. We need to be careful we don't scare them off with the stuff that we find interesting.