Best way to increase the display size of a web video
If it is a flash source, then there is a good chance it has vector elements.  You should export at a higher resolution from the source rather than trying to upscale the mov file.  

Working from the original will ensure accurate pixel data for any vector elements and produce a much higher quality upscale.  (This is actually one of the major reasons for Flash's early popularity.)  If that isn't an option or it was a raster format asset in Flash, then it is really a toss up between the two options depending on the quality of the original encoding.

Encoding to a new size can do slower and more accurate upscaling that will produce fewer artifacts, but if the original source you are upscaling from is already pretty low quality, a second generation of encoding loss may very well exceed the amount of quality improvement you get from the rendered out upscale.

So in summary, the best option is to export from Flash at a higher resolution.  If you can't do that, re-encode if you can do it without another generation of loss or have a high enough quality source (200kbps is not high enough for a re-encode most likely).  Finally, if you don't have that, then stick with the re-size in the player on the fly.