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I decided to start a new thread on this topic as I think it is important for the visual experience with Netflix use on an internet browser.
When I first try Netflix on my HTPC machine running windows 7, I was not impressed by the image quality but though that it was impossible that a company that big where not using the best compression tools; MS Expression with dedicated accelerators like the one from Matrox. So I did some research and experiment on my computer.

At first Silverlight need control over your graphic adapter so make sure you are using one of the Aero theme that will enable Silverlight to control the v-Sync of your graphic adapter.
Then you will have to modify the configuration of your graphic adapter. I am using an embedded HD4200 driving a 42"-720p, for which the optimal setting are;
In the 3D setting
SmoothVision HD anti-aliasing and Anisothrpic Filtering are set to "Use application setting"
Catalyst A.I. is set to "advanced"
MipMap is set to "Quality"
Vertical refresh is set to "Off, unless application specifies"
Adaptive Anti-Aliasing Enable and set to "Quality"
OpenGl Triple buffering Enable (but I think this one as no effect)

To find optimize setting you can do it will watching an HD movie from Netflix while having the graphic adapter GUI open (on the same monitor or tv) and applying setting to see the result on the PQ.
If you find optimal settings for your graphic adapter and OS post them in this thread to help optimize viewing experience for all users.

Note: In optimal setting your PQ should be very close from what you are getting from HD cable
 

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Where did you find all these settings? I'm about to make some changes on my HTPC and am hoping for some much better results than the default that I see now.

All the settings were under gaming 3D Application Settings. They were all the default on the ATI driver 11-2 except for the last two you mention including the one you didn't think mattered.

I am not hopeful it will make much difference sadly. :(
 

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It is a little bit chunky when scenes are panning. Still is. I know I don't have the latest ATI driver. It is a 5000 series card hooked up HDMI. I am comparing it to the PS3. PS3 doesn't show these symptoms. I was not aware of those hotkeys I will have to check them out.
 
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