yes this is bothering me too. It's the same when I upload videos to YouTube or to my facebook. The quality is bad. My friends keep saying my iPhone sucks because it can't take good videos.... But on my phone the videos look perfect!
Best way to send video I've found is dropbox. In the app there are settings under camera for high definition. Then mark the video as public and send friends the link. I know it's a pain, it's the best we have at this point. Hope some dev sees the value in making it a smoother process. Would fetch a pretty penny in the app store or integrated into a SMS app and put on the Cydia store. Can anyone say iRealSMS 4.0.
I read and have pixelpipe. Unfortunately the one thing gizmodo neglects to tell ya is that each video has to be 200mb or less. Not a very long video when talking about 720p. On the flip side it does work very well and hell it's free!