Blender FFmpeg H.264 Codec Bug

If you select FFmpeg output and use the H264 preset in Blender, you'll get an error: "Couldn't initialize codec". This applies to Blender 2.49 and 2.5a2.

The solution to this is to set the qdiff parameter to 4.

I have reported this as a bug (#20843[a]), but since viewing bugs requires a projects.blender.org bugtracker login I thought I'd repost the report and solution here.