Jaanus Kase posted instructions over on Skype’s developer site for enabling higher quality 640×480 video. You need to upgrade to the latest Skype release (220.127.116.11 or later for mac and 18.104.22.168 for PC), quit Skype, and then edit the config.xml file in your settings directory (“~/Library/Application Support/Skype/[skypeusername]/” in OS X).
You should see an entry that looks similar to:
Modify that to read:
When you’ve finished, your contacts will be seeing you in glorious 640×480 instead of the standard 320×240. There are some tweaks and hardware requirements that might be required for the PC version, so check up on the links below for the nitty-gritty details.