IMO, the worst picture quality of any channels broadcasting in Sydney (aside from datacasts) is definitely Seven’s various SD MPEG2 channels. I don’t know if it’s because they’re using older encoding equipment or what, but there are quite visible compression artefacts (especially around the watermark and on-screen text, etc.) even on scenes with relatively little/slight motion!
I personally think that Australian free to air TV can do decent quality SD (the ABC’s channels have decent SD quality IMO) and HD (sure it’s not perfect, but the quality of Nine and Ten’s HD channels look reasonably good for the most part) broadcasts, the problem is that there’s just not enough of it because most networks like to cram as many channels on the multiplex as possible!