Quality issue when moving clips from events to project

When I drags clips or parts of clips from events to my project, the quality drops significantly (blocking).
Original clip (H264 encoded SD video) is fine, when imported into imovie it is still fine when skimmed/viewed in the event but as soon as draged into the project, the quality is bad (when skimmed/viewed in the project) and blocking occurs, especially in dark parts of the video. Of course this bad quality remains on the exported video :-(((
Any idea where this might come from and how to overcome it ?
Thx for your support

Apologies for bumping this again, but I'm getting the same issue and I'm wondering if it's the original HD files that are incompatible in imovie. It's odd that only a few of us are reporting it.
I'm capturing HD video in mov format (motion jpeg) from a panasonic FZ5 still camera. The footage has been imported via iphoto. It's 30fps - not the native uk frame rate - but I can't change this on the camara. When I edit in imovie, I get the same massive drop in quality as soon as I move an event to the timeline. Blocking especially on blocks of colour. This happens on playback from the timeline within imovie and on export. I've tried creating a project in both pal format and ntsc in case the frame rate is the issue. No joy. In Final cut the problem seems not to exist, but I'd prefer to manage these very simple home movies in imovie.
I'm now wondering whether to switch to a different still camera like the newer panasonics or sony hx5 as these capture in avchd (presumably 25/50 fps if sold in uk) and might get over the problem. any thoughts?

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