I don't know how to help you at the moment - maybe it is an export issue (like the movie conversion settings aren't set to highest or whatever). I do feel your problems with just about every post-production video editing software! I wish they would, by default, just export the video as it was when imported. I hate how half of them auto shrink it and auto screw it up . Well, hope you solve the issue.

I know exactly what you're talking about.  I've faced the same problem.  When importing files into imovie, the movie appears low-res, posterized, and grainy.  I stopped using imovie and switched to Final Cut with no problems. 

I know there are other free editors out there, but I haven't had experience with any of them.

Hm, good it worked out. I use Final Cut Express, but even it annoys me sometimes - there are too many compressing options. I hardly use iMovie so I never noticed this.