bad quality with K-Lite

Hi. I am using MPC HC x64 on Windows 8. I get brick-like pixels while playing movies in MPC. And general quality of picture is worst then in default OS player. Frustrating. I have done re-installs, settings reset, followed geek configuration guides, etc. Nothing helps. Any solutions?

Made 2 full-screen screenshots of a 700x400 movie (bad resolution for you to see the effect clearly). Get a close look.
OS Player
MPC

os player makes it kinda smoother definitely. why so?

Install both 32-bit and 64-bit version of the codec pack. Get rid of the MPC-HC x64 and use the MPC-HC from the pack instead. The x64 version of MPC-HC is not better in any way, in fact, it will only give you problems that don't exist in the x86 version.

Choose ffdshow as the MPEG-4 decoder in the pack. Enable 'Postprocessing' in the ffdshow video decoder settings (32-bit version). There are different PP settings you can try out. You might like the 'fast SPP deblocking' setting. This should reduce blocking.

I also recommend updating your graphics driver. Don't use driver from WindowsUpdate, but get it directly from the AMD/NVIDIA/Intel website.