Well, I read more, and I played more.
First, the original video I posted sucked. I couldn’t figure out why iMovie HD was degrading the video for the life of me. I tried every encoding setup known to man, but just couldn’t figure it out. Finally I realized that when I had originally hit "Create a New Project", I had selected to save it in MPEG, instead of DV. This meant I was starting with already compressed video from the beginning! I realized it when I had finally posted the first project all over the web and started to work on another video.
So.. I started over the first one with DV, re-did all the editing, re-exported, and it was the same as the original AVI quality. Woohoo! Next I spent a few hours scouring the web for what h.264 bitrates should be used to represent standard definition (480p) and high definition (1080p) video. I’ve come to the conclusion that there is no clear direction amongst the world. However, I have to make some decision, so my belief based on reading is that 2mbps for 480p and 8mbps for 1080p are appropriate with h.264. Since those reference average bit rates, I will set the QT encoding to a max bit rate of 2.5mbps for 480p and 10mbps for 1080p.
My logic for the audio is pretty similar since I do all my MP3s in 192kbit VBR, and the AAC is set to 224kbit. If I ever end up with video taken with a better audio feed than a basic handheld camcorder/camera, I’ll have to return and play with that part more.