Hi guys. In CS5, when I have gradients in my video, there is serious banding apparent after I do the final export to h.264.

For example, I have an animation with a grey gradient background. The frames were rendered in Lightwave 3d as 32bit targas, encoded together into an animation in After effects in a 16bpc project, and then the animation was imported into Premiere.

All throughout this process, the gray gradient background does not exhibit a serious banding issue. But as soon as I render out an h.264 mp4, the banding is very apparent when I play the file in windows media player, VLC, and its even there when I import it back into Premiere and play it in the source window.

My final file is an h.264 mp4, appleTV 720p preset (2-pass) with both "render at maximum depth" and "use maximum render quality" checked ON.

Is this because h.264 is only 8-bit? How can one render out higher-quality final file?

Yes, it's because H.264 is 8-bit, but also due to H.264 compression. Increasing a bit rate might help, if you can get away with it.

Regardless, I suggest introducing a little noise or dither to your gradients and graphics. It will help even more with this kind of delivery format.

Indeed.
In 8 bit there are only 256 values of grey (0-255).

When rendering colors in 32-bit, you are creating way more information than an 8-bit pixel can hold.

Try rendering out in 8 or 10 bit and continue with your workflow, or

Move your workflow into 32-bit mode.

Yes add a bit of noise. It shouldn't take too much. Go to add Noise in effects and start with something like 0.5 and export a small sample clip. Keep raising the amount of noise until the banding goes away.

noise and perhaps try applying neatvideo plugin after it is in h.264 format.