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I do have a 5th Gen Broadwell though, which has newer features/grunt. Make sure your drivers are up to date also.
In general, Software Encoding is the best possible quality, but it takes some CPU cycles away from the game. NVENC (NVIDIA) and QuickSync (Intel) are on by default because most systems that support them can do so with pretty decent quality, and they do not use as many CPU cycles.
If Software Encoding does not slow down your game too much, then it is always the best choice.
Please do not disable QuickSync on Intel CPUs older than 4xxx series! I have an i7 3770k and 2x GeForce GTX 670 in SLI and QuickSync gives me clearly the best and consistent performance over the other encoding options in games using dx10 and 11. Only for some dx9 games NVENC performs better.
Sure the QuickSync encoding quality in sandy/ivy bridge CPUs can be blocky sometimes, but I can live with that for now.
The problem with NVENC in my setup is that there is a severe fps drop in scenarios where QuickSync can hold a constant 60fps in dx10 or dx11 games. And now when the occasional "black screen flash" has been fixed in QuickSync encoding it would really ruin my in home streaming if it would be disabled as an option.