Gmail's significantly improved their video chat with higher quality video; you just have to turn it on. While logged into your Gmail account, visit the Gmail Labs menu and enable "Video Chat Enhancements".
Toggle it on to start enjoying immediate improvements in your video chat experience. Right away, you'll notice higher resolution and a bigger video chat window, and once it's enabled, you'll be the first to see all the new improvements Gmail rolls out to their video chat feature in the future. To take advantage of the Lab features, both parties need to have enabled "Video Chat Enhancements".
New in Labs: Video Chat Enhancements [The Official Gmail Blog]