I direct downloaded the cars.flv and checked the metadata. It is a 400 x 300 pixel video. So I set the display size in a text video player I created to exactly 400 x 300 and played the video. The text is better than what's displayed on your site. Then I set the two video players side by side and the display on your site is not exactly 400 x 300, it's a little smaller.
Because the display pixel size does not exactly match the video, I think it's causing slight distortions in the crispness of the text.
I've seen this same thing before so that's why I wanted to check your display dimensions against the actual size of the video.
I can't seem to get an image posted here so view the one at this link:
notice the difference in the white line of text which starts "The second Generation..."
on the left, an actual 400 x 300 player, on the right, the slightly smaller player used on your site.
Besides the text, notice the slightly smaller video size of the player on the right, your site.
So I think that's the problem.
Thanks very much for going into such depth exploring this issue.
I checked the players actionscript and couldn't see the settings for the players size, so what I have now done instead is export the original flash file out at twice the size, then encoded it back into an FLV. Once uploaded it has to scale down again to fit the player's dimensions and so it now seems that bit more crisper than before.
I think possibly in addition to what you mentioned the FLV was scaling up slightly which was then leading to some distortion.
Thanks again for your help.