Hi aL_ -
You're right (as usual) about using Camtasia Studio. I'll post more details on my blog later. Glad you like the PiP format.
As for the "letterboxing" actually there's a good reason for it here. When dealing with video encoding you have to choose the best algorithm (framerate, frame quality, bitrate, etc.) for the content type you are encoding. For example, the best balance for encoding live action video may not work well for encoding desktop captures, and vice versa. For videos such as this, I believe that optimizing for the screen (so that you can see the demo clearly) is more important than optimizing for the live action video. I hope you'll agree.
Now when the video opens and closes, and we're not looking at a demo, I'm left with how to best encode the live action video. I could have shown it in a small box, but I think that's less personal of an "introduction" to the interviewees. I could have shown it full screen, but that would have resulted in a pretty jerky and blurry video. The reason I shrank it (not just letterboxed, it's also narrower as well) is that, as image size goes up, image quality goes down when all else is equal (e.g. bitrate). And since the quality of the live action video is already suffering due to the optimization for screen encodings, I sought to strike a balance.
Sorry you don't like it, but hopefully now you understand the reasoning behind the approach. I welcome your ideas on how to improve the quality in the future. If only somebody would invent a video format that allowed you to use different encoding approaches for different sections of your video, in much the same way that somebody might slice-and-dice a Web site design to use different qualities and types of image compression. Now THAT would be sweet.
Brian Keller