In the Proxy / Timecode panel the "Build JPEG quality has no effect on the quality of the proxy being built. In the attached file try building the proxy with the quality set to 1, then try it with it set to 100. There will be no difference in the proxy's quality.
Tested on Blender 2.62 official release.
Windows 7 64bit and Ubuntu 11.04 32 bit.
4GB ram
NVIDIA Quadro 1600M
T9500 Core 2 Duo @ 2.6 GHz.
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Might want to fix the problem in my next report before trying to fix this one. (If you are using window that is.)
http://projects.blender.org/tracker/index.php?func=detail&aid=30315&group_id=9&atid=498
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This issue was fixed in svn rev44242 which is newer than 2.62 release. You can use newer builds form our buildbot service http://builder.blender.org/download/ or from http://graphicall.org/
Thanks for the report, but will close it now.