That bitrate is pretty low, which might explain the blockiness (is that a word?).
From YouTube's upload guidelines, you are encoding at the minimum recommended bitrate for standard 720P video. Maybe you should boost to 7500K (7.5 Mbps) and see if that helps.
Also, it appears that Octopi is merely calling ffmpeg locally and returning the video. The encoding that is being used might be resulting in blockiness. If you have access to the raw photos, you could just dump them into a directory on another machine and generate a video using a less-lossy video codec. Of course, this would only work if the photos you are taking are high quality. Assuming that they are, here is a nice resource for producing videos from image sequences in ffmpeg.
P.S. Alternatively, if you prefer a lightweight video tool with a GUI, you could use ImageJ.