Not sure if this subject has been touched on yet but I believe I found out how to enable higher quality video recording to Froyo builds, but please correct me if I'm mistaken.
It seems that in 2.2, Google changed the Build.prop file which used to contain the data that controlled video recording quality. Now you can navigate to /etc/media_profiles.xml file and if you scroll down halfway through the file you'll see text that reads Camcorder Profiles. The first data set controls the "high" quality recording settings and changing the bitRate from 3000000 to 7000000 or 8000000 will greatly increase recording quality based on my observations. If anyone can really put this to test that would be wonderful!
Thanks all and best of luck!