Edit: relevant docs from ffmpeg, they back up your perception, and now I'm left to wonder how much I want to learn about profiles in order to cut up these videos. I suppose I'll run an overnight job to reencode them from Avi to h264 at high quality, and make sure the scene detect script is only doing copys, not reencoding, since that's the part I'm doing interactively, there's no real reason I should be sitting at the computer while its transcoding.
Hardware encoders typically generate output of significantly lower quality than good software encoders like x264, but are generally faster and do not use much CPU resource. (That is, they require a higher bitrate to make output with the same perceptual quality, or they make output with a lower perceptual quality at the same bitrate.)