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Capturing to H264 will always be better than MJPEG (which requires ~ 4x the bitrate for similar output), plus Vegas is pretty aweful for quality as well ...
He's probably just straight out uploading the H264 encode from the capture ...
Your's is going thru a few various conversions from a pretty aweful (MJPEG) source ...
7
PS as mentioned, you have no control over what youtube decides to butcher the video too ...
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