Lagging pixels on video while editing and after render-export. -How do I fix this? the original media is Crystal clear.

Question

Hello guys,
I am trying to edit some gameplay footage I captured using "AverMedia Game Capture HD", but whenever I import the media (at 1080i),
There are pixels that hang on the video player, mostly when the camera is turning left to right,
and on occasion, some random color blurs that bloom out of nowhere.
I attached a image so you can see what it looks like:
Here is what the video looks like after it is rendered and exported.
Along with the visual pixels, it also displays horizontal lines. (possibly due to my export settings, I was in a hurry just to test it)
Both the capture device and final cut pro x are upgraded to the latest firmware/updates.
I am using HD AC Component cables (blue green red) both for in and out connections between ps3 - cap device - tv.
The capture device automatically records files to mpeg-4.
The resolution of the tv, and recorded footage is in 1080i (1920 × 1080) and the quality looks great when I play it through quick time or any other media players:
Any tips or info? I have been using Final Cut pro  x since it was released. I am not a professional but I have used it for some very important jobs thorugout the year, but I am really stumped with this.
Overview:
-Media info
File Type: mpeg-4
Codec: H.264, AAC
Dimensions: 1080i (1920 × 1080)
Thankyou for the help!

Answer 1

Alright, lets get the good news out first:
Converting the file definitely fixed the pixel issues.
However, there where frequent "blips" of some frames that disturbed the video.
Also, the converter created a 5GB file that was originally around 300MB!!
It put a serious load on importing, rendering and transcode analysis, however the video played back smoothly, it would be perfect despite the large file size and frequent frame glitches.
This is all due to my lack of knowledge in video property conversion.
At this point, I feel that I am asking for too much, but I am really stumped...
I can try so many possibilities, but this would save me allot of time if I could get the help:
What converter settings should choose to have the optimal video file that,
plays back smoothly,
plays In HD,
is compatible with fcp,
and can still stay moderately low on file size?
Here is the current info on the RAW video file:
Here are the previous settings I used to convert:
(slight improvemnt, but extremely high file size, and still has some frame glitches)
What should I have (not?) done with these options?
(I admit I chose these settings and had no Idea what the heck I was doing)
Again, thank you for your help, I really appreciate it.
EDIT:
For reference, This is the new glitch issue I see:
Here is the normal frame,
Here is the next frame when a glitch apears.
It seems to be replying a previous frame in the video.
Also, the horozontal lines do not show during live playback, only when the play head is paused, or when scrubbing.