Isn't quality inherently lost because the same video has to be reencoded again but without the shakes? Also, I just tested on a video and it looked slightly smudgy. OK, so if I am filming driving down a dirt road or after half a bottle of Jack Daniel's (or both) then it'd be good, otherwise it does more harm than good.
As I understand it the motion blur is a product of lossy compression (CCD has very short pixel-local exposure times; the shearing the article refers to appears when sweeping the whole image); which means that yes, stabilisation algorithms would work best with source data that hasn't been compressed using a perceptual model of motion blur.