1. A method of estimating a distortion level associated with an encoding mode, the method comprising: transforming a motion compensated prediction residual associated with the encoding mode; quantizing the transformed motion compensated prediction residual; inverse quantizing the quantized, transformed motion compensated prediction residual resulting in a reconstructed transform domain residual; estimating a spatial domain residual through a transform domain based analysis of the transformed motion compensated prediction residual and the reconstructed transform domain residual; and calculating a distortion level from the estimated spatial domain residual.