Even if your display quality is set to highest, the program monitor is a poor way to judge the quality. Use a properly calibrated external monitor to judge quality. Another thing, why use an interlaced project when your source is progressive?
Hmmm... And Why can I chage my project from an interlaced to progressive project?
Create a new sequence with progressive settings and import your stills or existing sequence into it.
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If your timeline also contains footage dont change the settings. Right mouseclick on the still, Field Options/Always Deinterlace (when on Lower Field also change the Field Dominance) or depending on the still (lot of thin horizontal lines like bricks) Flicker Removal. Also under the Effect Controles under Motion you will find Anti-Flicker. This will give a slight Blur to the image. Experiment.
When doing only slideshows have a look at ProShowGold, this programm does a far better job in making stills into mpeg than Premiere.
Two more things to think about:
1.) set your Keyframes to Continuous Bezier, or use the Ease Out/Ease In. Experiment to see which you like the best.
2.) before Preview, hit Enter, to Render your footage with the Keyframes.