Just tried it myself, no distortion happening. However, the blurriness you describe could just be the effect of the picture being at a much lower resolution than when you look at it normally (imovie outputs as SD on default settings, so the pictures are scaled to fit 640x480). If that's the case you could try making your movie as a HD project (selecting HDV 1080i as the format when making a new project). However, if you want to use SD video in the movie, I'm not sure how imovie would handle that. Another thing to try would be to reduce the image size to 640x480 using photoshop/iphoto/etc before importing into imovie.