I've been part of that team since nearly the beginning. Without getting into too much detail I can give an overview of what we've been doing the last month or so. Basically there's 3 types of frames in mpeg video I,P and B frames, I frames are basically a full frame. All the information to recreate an I-frame is stored within an I-frame. P frames snap a new frame and compare it to the previous I frame and keep only what's changed, and B frames do the same thing except bi-directionally. The layout is usually IBBPBBPBBPBBPBB and then repeats, so you only really get a full frame every 15 frames. Most of the data from the video is actually there, it's just that there's alot of corrupt macroblocks, so we've been manually reassigning macroblocks, a really tedious process, and sometimes telling the decoder to ignore a macroblock which sometimes causes whole sections to come back. Also, chroma and luma values have been corrupted, and we've been going in and adjusting those until the color and brightness values "look right". It's been a big project from a bunch of forum members volunteering time to work on the 13 or so I frames in the video. Also, there's no real tools for this sort of thing, but we were lucky enough to have Michael Niedermayer, current curator of the open source FFMPEG codec as a forum member, so we'd tell him what tools we needed (to reassign macroblocks or XOR luma/chroma bits, etc, and he'd code it into FFMPEG for us. Without his contributions this would have been impossible. SpaceX has also been supportive of our efforts and following our progress as well. It was really cool today to open my phone and see a tweet by Elon Musk tweeting out the url to the video today!
Hopefully we'll get better video on the next launch. Unfortunately, the weather was so bad that NASA couldn't safely get any planes or ships close enough to get a decent recording of the signal. It's been alot of work, and alot of fun to try and restore this historic video. Also, all are welcome, so any mpeg experts here are welcome to come over to nasaspaceflight.com and join the fun...!
Edit: Anyone interested in watching the unveiling of the new manned version of Dragon can tune in 10pm Eastern Time (GMT +5) to watch live:
http://www.space.com/26043-spacex-manned-dragon-spacecraft-unveiling-webcast.html