Indeed. I'm not saying you're going to lose a lot, but taking a lossy source video and re-encoding it as a lossy video will lose a bit of quality. In theory you could use fancypants modern algorithms to boost "source" quality in both scenarios, but that brings its own issues. I'm looking forward to the MPEG version the most, myself.
We have higher quality sources for all three of those games. Sakura Wars we pulled from the PC release, Lunar Silver Star Story we used the PC release. Grandia I used either the PS1 videos or the HD Remaster videos if I could get away with it.
The only major game like this we don't have the higher quality sources for is Lunar 2, but that game technically has the potential to do Soft Subs.