Converting from Full-Size to 960x540 in imovie 09

Hi There,
I've been a professional photographer for a number of years & have recently started doing video projects. If someone could shed some light on this matter I would be greatly appreciated. I bought a Canon HFS100 which takes 1080HD video. I connect it to my Macbook Pro and open imovie 09. It brings up the box to import video, select the footage I wish to import & click "import". It then asks to either import as full-size or 960x540. When I opt for full-size, it advises that this could result in poorer quality. I imported one clip as full-size but when I played it back in imovie 09, the clip was not smooth but quite jerky and looked bad. But when I imported as 960x540 the clip was perfect. So my actual question is this: Why does imovie downsize the clip to a smaller size and does this effect the image quality when I export a project. Can I re-size the clip back to the original 1080HD? I'm kind of wondering what's the point in having a HD camera in the first place if it does this.
Many Thanks

Thanks a lot for that Steve,
I have an NVIDIA GeForce 8600M GT 256MB graphics card with 4GB RAM so is this considered slow? what would be the minimum for smooth playback of full size video. Is there much loss in quality when it's downsized? What other video editing software would you recommend. I'd like to burn projects to DVD with minimal loss in quality and know that exports to iDVD compress the video where you get considerable loss.
Cheers

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