Poor video quality when sharing .avi H.264 clip

My video camera produces .avi files, encoded with H.264, aspect ratio 720x400, square pixels.
To preserve the original quality and avoid letterboxing, I want the final shared clip to be the same encoding and aspect ratio. So I've created a suitable project setting and share presets.
Now the problem is that I can edit and share these clips but the image quality is noticeably degraded.
Is there any way this can be fixed?
I am using PrE 10 32bit on Windows XP.
Thanks
K0ICHI

Steve, Bill, John, thanks for your prompt replies.
Steve, I took your advice and used the Flip Mino and changed the frame size to 720x400. I then used the MP4 - H.264 1440x1080p 30, modified again to 720x400 to produce the output. And the result? I can't tell the original file from the output file, except for the audio, that is a bit lower in volume and actually sligtly more pleasant to listen to.
The camera is an AIM SmartyCam:
http://www.smartycam.com/on-board-camera/technical-features.htm
The output is to be viewed on my computer and uploaded to YouTube.
Bill, I agree with your fax of a fax concept in theory, but as I said, the image quality degradation is indiscernable, and the output file is not compressed, it is actually more than triple the size of the original!
John, my video is H.264 inside AVI, and it works... :-) GSpot actually says the file is very similar to the one in the thread you linked to. It only differs by having PCM 16kHz mono sound and a different frame size.
Before I used a modified HDV project setting: These and the Flip project settings seem to be mostly the same except that they use different editing modes, so I guess this is the reason why the Flip works so much better?
In any case, thank you all for the help!
K0ICHI

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