Edge smoothing needed for avi files

I’ve noticed that with DVDFab, sometimes the resulting AVI files have really pixelated edges. I uploaded a couple of images to show you what I mean. The first image is an AVI from Handbrake and the second image is from DVDFab 5.3.0.5. It is from the anime AIR TV. Both are 704x396 and both have 23 FPS and a 175 MB file size.

As you can see, it does have some effect on quality. It is also probably a lot more noticeable on cartoons than in movies due to the pronounced edges.