Even DivX would have been fine, they needed something that has good VBR detection and image quality, and that would have done the job too, the licensing isn't even that much with DivX. We are talking about 576p videos here, doesn't require any type of power house to decode especially when working with a tri-core power pc at 3.2ghz per core, this really is SE's retarded decision.
I'm also extremely sensitive to resolution because I can see which one is sharper right away without even trying when watching the comparison videos in HD, the schedule was most likely too tight with that one though, it's not easy to write a game engine that works that well in the short amount of time they were given, on top of some missing features..... but if you only have a 360, should definitely give it a go anyways just to see if you like the game.
