I’ve been having the same issue.
Seems the only fix I’ve been able to figure out is to embed the video using a rich text block, instead of the ‘video’ widget. This then loads in the video preview/thumbnail un-pixelated.
Here’s a step-by-step on what I did.
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Create a rich text field in the CMS collection settings.
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Add the video by clicking on the rich text field > click the ‘+’ tooltip > click the video icon > paste in the video URL.
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On the video settings, set to full width by clicking the icon.
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In the collection page template, add a rich text block and link up to the rich text field from step 1 using the ‘inner text settings’.
The video embed widget used to work for me and others without the pixelation, so it seems like it’s a recent issue. But this solution does the trick for now, until it is fixed.
Let me know if this works for you or not.