I'll explain what I know even though I'm not an iPhone to FCE user.
If the picture is right way up in pause mode that means means it will be fine after rendering.
At the moment the clips you are using are not compatible directly for FCE use.
You would be best to transcode the iPhone clips to the specs of one of the FCE Easy Setups before bringing them into FCE.
Try a test.
you were right after rendering the clip plays normal but in canvas only and still not in viewer (i.e. in the viewer the video playback is still very choppy and not smooth at all). so not sure how to work the clip without being able to use viewer.
i tried to convert it through mpeg streamclip but again the results are clips that do not play smoothly.
unfortunatelly there is no iphone option in fce (nor in fcp) for easy set up.
ok 30 minutes later I cracked it. when I export from Quicktime to iTunes and then import from iTunes to fce then it works fine.
thank you again.