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To whoever suggested Real Video was better at low filesizes (I can't seem to find the post and I'm feeling lazy) - go look in the h264 thread on ~page 16. Hopefully the two videos with information I posted there (now taken down, but I will rehost if you want) will be enough to sway your mind.
Secondly, comparing two encodes from different groups is fruitless. It's not even certain if they used the same raw, let alone know anything about how to encode them. To the OP: you seem to have gotten caught up in the idea that h264 means lower filesizes. It doesn't. It means higher compression, ceritus paribus. That can either mean smaller filesizes or higher quality (well, it could mean both as well I guess).
So now you have the question you started with, "why choose higher quality over compression?". To generalise, "why do the encoders value one property of an encoded file over another?". The answer, of course, is "because they do". Since this answer has so far failed to be taken at face value, with the endless repitition of "ok, but why?", I offer this:
"just as movie buffs have higher standards for what constitutes an 'enjoyable' film than your average punter, so do encoders have higher standards for the quality of their encode. Just as length & accessibility of a film are small deterrents for movie goers, filesize is simply an inconvenient technical limitation getting in the way of a 'better' encode for encoders. It's not something that becomes important when you are looking at files that are both relatively small (compared to 350mb scene TV rips) and absolutely small (compared to 700mb+ movies and hard drive sizes these days).
That's what I think the reason is anyway - if you are looking for some more windmills to tilt at I can suggest either groupthink or group polarisation - both of those are probably valid complaints against the encoder 'community'.
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