You know, I read this entry before, but totally missed your comment on video quality.
It is probably an issue they are trying to work out -- all the video they are transcoding for this service is, of course, interlaced video; an issue can happen with some refresh rates and interlaced video similar to what you describe. It pertains to the time it takes to completely display the whole image from frame to frame, if I remember correctly. I'm not very high up in the video-geekery hierarchy, I'm afraid.

Long story short, it's not really the fault of Itunes or quicktime, so much as an issue with the people encoding video to it.