What is the culprit behind artifact-ridden, heavily pixelated movie output from Movie Maker, regardless of output file type (.wmv & .mp4) and compression settings?   And how does one rectify it?  

I'm running Movie Maker version 2012, Build 16.4.3508.0205) on Win 7 SP 1 on an HP desktop w/ an Intel i7-2600 at 12 Gb RAM. 

I've input MTS files from a camcorder, built a short (5 min) project, and it looks great on the preview screen, but is essentially worthless upon output, even at the Windows 7 (720p) setting that generates a 360Mb output file.  The raw MTS files combined only total about 400 Mb combined, so why would a measly 40 Mb of compression yield such pathetic results? 

Is there no way just to output MTS files at the same resolution as the original input files?