Welcome to the forum, ziwi!
The pixel size of the photo's is 3456x2304.
That's not a 4:3 aspect ratio, which makes me ask about the history of the photo. Was it imported to iMovie "as is" from the camera? Cropped before importing it? Is it a scanned image? A "Raw" photo?
When we import a 3456 x 2304 photo to a DV project (with a Ken Burns zoom setting of 1.00) iMovie HD adds a black border to the top and bottom. If it DOESN'T do that, please say.
The only way it looks remotely good is when I use the 720 setting, but then I can not make a watchable DVD - right?
Not sure I follow you there...about not being able to make a DVD. We can make a DVD that includes any size photo imported to iMovie. The quality of the DVD is affected by how we handle the photo, but you may mean something different. If it's important, please say more.
I did a share and above it says not to do that, but the images in the viewer looked really bad prior to that anyway.
If you ever pressed the Create iDVD Project button and allowed iMovie HD to render the (unrendered) images, the "jaggies" will have been added to the video. They cannot be removed. To get rid of them, it's necessary to re-import the image. So don't use such video to evaluate quality.
Sharing to a QuickTime movie is a very different process than creating a DVD. Exporting the iMovie project to a QuickTime movie introduces many other factors that affect the quality of the image. These include the codec you choose to compress the video, the level of compression, the dimensions of the exported movie, and lots of other things. So to evaluate quality, avoid going down that road. It's too complicated. Entire books have been written about that.
If you exported to a Full Quality movie, don't forget that movie is not what its name implies -- full quality -- when played in QuickTime Player. The name refers to the movie containing all the data that's needed to preserve the full quality of the video in the project. But to actually see that quality, you must turn on the High Quality playback setting in QuickTime Player. QuickTime Pro is required to do that. By default, the Full Quality movie does NOT play at High Quality. So don't judge the quality of the iMovie project there unless you've adjusted those settings. Turn High Quality ON, Deinterlace OFF.
Don't forget too that iMovie HD never shows you all the quality that's there, so don't judge the quality of this book by its cover.
All that is a long way of saying we have to be very careful where and how we judge image quality. If you know you're doing all that correctly, then I suggest modifying the photo so you know the image size is okay and not contributing to "making the bricks move".
I'd first try cropping the image to 720x528 in Photoshop or iPhoto. Do NOT resize it; crop to a section of it. Test how well that imported cropped image behaves in iMovie. If the bricks continue to move, try blurring the image a bit.
Lines in images that acquire "jaggies" (e.g. bricks?) can appear to move. Video can also "shimmer" when the image is very sharp. I remember someone reporting eyelids in a photo would appear to open and close. Blurring helps that.
Karl