I use X2 to stream to Youtube. The video quality is fine for static objects. It gets distorted if there is some movement. For example: If a person turns the head, that area will get distorted. I use 720p/2Mpbs setting. I tried going to 1080p/4Mbps but was hitting insufficient bandwidth on 100/20Mbps connection. There is no distortion on the monitor connected to X2 so it should be getting good input. The issue is only in the uploaded video. I use Canon VIXIA HF G40 camera via HDMI. X2 shows that it gets 1920×1080 input.
Any tips how to improve picture quality?
Unfortunately what you are describing is compression artifacting from encoding 720p at 2mbps. You might get better results by increasing the lighting in the scene to allow it to compress nicer. But the best quality improvement would likely be to see if you can get an increased upload speed from your internet provider. 720p at 4Mbps would certainly solve this if you could sustain a 4Mbps upload speed.