AVCHD 720p looks terrible on export

Recently purchased a Panasonic DMC-z28 camera. It takes AVCHD video at 720p.
When I copy the .mov files to my computer and play them, they look great.
I put together a little movie in Final Cut Express to couple the 720p video with some photos.
I'm exporting at Best Quality, 720p, using h.264 and Quicktime settings.
The stills look pretty good, but the video is clearly re-processed and looks pretty bad.
It seems line Final Cut Express wouldn't bother re-processing the video if it's already at 720p, at least to my small brain.
Is there a setting I'm missing?
Thanks.

Thank you for your input.
The camera takes video at 720p 30 frames per second. I do not believe it's non-standard.
It looks beautiful when I play the AVCHD original in Quicktime Pro.
I am incorporating it with music and other still photos to make a slide show of both stills and video, so to speak.
I'm bringing it into Final Cut express with transitions and music. I am exporting it at 720p 30 rames per second to use Toast 10 to write it to a DVD that supposedly Toast 10 will make it Blu-Ray compatible, thus a 720p DVD.
The still photos look great, the transitions look great, and the music sounds great.
The video looks fuzzy and interlaced. I don't know how else to describe it.

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