Hi - thanks for letting us know that you've resolved the quality problem, and sorry that none of us got back to you earlier. But just for the benefit of other users, are you able to share the method you used originally, compared to the method that worked for you? It may give us a better understanding of why some methods work better than others.
I get very good results importing 1080i AVCHD clips at either the Large size (960 x 540) or Full (1920 x 1080), then exporting using Share > Media Browser or Share > Export Movie, at the Large, HD 720p or HD 1080p size (subject to the import size).
iMovie '11 is actually version 9, the latest update being 9.0.8. As you appear to be on iMovie '11 version 9.0.4 it would be worth updating - unless of course Snow Leopard doesn't work with versions later than 9.0.4 (your profile shows you are using Mac OS X 10.6.8). Note that iMovie '09 is version 8, the last update being 8.0.6 - all very confusing!
John