Hi,
The blockiness that you are seeing is called pixellation and is a product of the DIGITAL transmission system and is not due to the original soucre material. The graininess however IS probably due the lower quality of the original recordings.
When broadcasters buy space on Sky's satellite they have to pay according to how much bandwidth they require. This bandwidth is measured in Mega Bits per second and the easiest way to imagine this is with water flowing through a pipe. If you have a big diameter pipe you can put lots of water down it, but if you only have a small pipe only a small amount of water can flow.
A channel such as BBC1 will pay loads and use around 10mbps whereas a smaller broadcaster would pay for say 6mbps. When you go to the HD channels then the numbers get bigger these will use 20 to 50 mbps as they need to contain a lot more data.