Since the Retina update for iMovie came out I decided to give iMovie another shot.
I imported some video a friend recorded of him playing Team Fortress 2.
He recorded the game using Fraps, which I have transcoded to Apple ProRes 422.
The video was recorded at his laptops native screen resolution 1360x768.
The problem persists exactly as before, there are still massive issues with the quality of video, which are not present in the source material and is persistent across all output options and settings, even when choosing a lossless setting such as Apple Animation or ProRes 4444.
The oddest thing about the entire problem is that the quicktime export reports that the current size of the media is 960x540, regardless of import settings and source material size.
My best guess is that at some point during iMovie's development they valued speed over everything else and there would be no noticeable issues with using 960x540 and then upscaling the output, as long as your intended use of the program is perfectly lit outdoor recordings of your family.
If you can afford it, I have had none of these problems with Final Cut Pro, it is just a pathetic waste of software for me as I only need a video editor to join and layer media I have created in other apps.
It is sad to see an Apple product become complete garbage simply because of poorly optimised export settings.
For Reference I have included a screenshot of the source video (left) and the same video exported with iMovie using Apple Animation using the best (lossless) setting (right);