Rendering quality of clips INSIDE iMovie - not on export

OK - I'm new to iMovie and have only used it one other time to make a slideshow. This time I'm trying to make as good a slideshow for a class presentation as I possibly can. That said, this is what I've discovered and am perplexed by it.
If I start out a project in MPEG4 format and render a theme opening screen or credit screen, the actualy rendered clip in iMovie gets obliterated with pixelation. This isn't on export which looks worse, but inside iMovie.
So, I started another project in 720P to compare the two and difference is amazing. The rendered clip inside iMovie is crisp and clear with no pixelation. If I export it it gets a little pixelated, but I could probably clean that up with a setting adjustment. Either way, it's nowhere near as bad as the MPEG4.
I than went and compared the same opening theme clip that iMovie stored in the project - the MPEG4 clip was 1.7MB versus the 720P at 54.4MB. Obviously the quality problem is coming in when it gets rendered, but I can't find any settings in iMovie that would allow the clips to NOT get compressed so darn much.
Am I missing something or is this the way it is?
Thanks.
Anthony C.

iM is meant as a DV-editor, importing lossless from miniDV devices by using the same codec, 'dv' ...
the ability of working with mpeg4 as codec is just an option to handle iSight recordings ... fun stuff...
since v5, iM handles socalled HiDef too ...
comparing the most compressed, low-res mpeg4 with an HiDef codec is ... I would say: of no use... (??)
obviously, you are comparing apples with pears .. ;))

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