> it's unlikely that consumers will be willing to take a step back in video compression/quality

If mp3 is anything to go by consumers as a whole actually seem to care surprisingly little about the quality / size equation. I suspect if either 10% more bandwidth is used or video is 10% worse the vast bulk of users couldn't give a hoot for the vast bulk of video they view on the web. There might be special cases (streaming HD movies, perhaps), but we don't need the general standard for web video to cater to every special case, just be good enough and robust enough for a wide variety of common cases.