Picture quality of internet TV is mostly limited by bandwidth. iPlayer on PS3 has SD and HD options, and you have to select which one you want. HD requires about 3.5Mbps, SD about 1.5Mbps. However the difference is not that great. iPlayer is however different on different platforms – if you open it up on your PC you’ll get a lower quality stream by default. I don’t know what the Wii uses but if you are complaining about the picture quality you are probably receiving the lower quality stream.
Netflix on the other hand has an adaptive system that automatically increases the quality to the highest your connection can support, and it’s very good. Our broadband is not fast enough for BBC HD generally, but the quality on Netflix is better even at a slightly lower bit rate. Better technology presumably.
However, if you are connecting using the red, white and yellow leads you can only view in SD quality. On BBC iPlayer this won’t make much difference, but on Netflix it may do. Bear in mind though that DVDs are SD so it can still look pretty good.