I am having a very similar problem. Using a Panasonic SDR-H40 that we bought just prior to my daughters birth, and now one year later I am just getting around to trying to compile everything into DVD's.
It seems that I get the decrease in quality when
1) I am viewing the movie in Imovie and
2) when I export a project from Imovie, it doesn't matter what type, codecs, compression I used at export, I tried a bunch of different ones and even reimported some original videos to try them out again.
What is weird is when I go to the Imovie events folder, and find the original .mov clip that I started with, and opened from the Finder, it is crystal clear. Compared side by side, the same footage is like night and day. One looks high quality, and the file i've exported as described above looks like something shot with a cell phone. Very pixelated, most pronounced in low light blacks.
It seems that Imovie imports the file and stores the original preserved file into the imovie events folder that you can open in finder. When you look at the same particular event in Imovie for editing or whatnot it looks degraded which I thought at first was a dumbed down "preview version" to make it easier to manipulate. Unfortunately, no matter what compression there is or file type, codec, or quality I choose, it seems to be actually exporting this "preview version" quality video because viewing in Imovie and whatever I export look identical.
So I am really not sure when the degradation. is actually occuring, at import, once I start manipulating, but it is definitely there at export.
What really ***** is I pulled out the ONLY DVD that I made with my PC before switching, and it is crystal clear, I think would look good on a HD television. And I thought everything would be easier with a mac.......
Any other thoughts anyone has would be much appreciated. I would really prefer not to have to switch programs, and I definitely don't want to have to go to something really expensive. It would be easier to buy a cheap PC to edit video. I just don't think I should have this much degradation to enjoy my home movies on DVD, I mean that is what you are supposed to do with these types of cameras.