If you sure the update is to blame, just un-install your suite, run Clean CS4 a couple of times, and re-install. Turn your auto Adobe updates off so you can pick and choose the updates you want to apply.
Are you, by any chance, also running after effects??
Yes, I have the full CS suite. I removed Premiere last night and reinstalled and did NOT apply updates. It's currently at version 4.0.0 . I am no able to import the same DV files without any issues. Still need to figure out what went wrong as I like being able to import VOB and other files with the updates.
The direct importation of 100% DVD-compliant (very important) was added to CS4.2 (IIRC), so there might be issues.
PS - as for the display quality, have you checked the Program Monitor for both Magnification (try 100%), and then Quality (try Highest, and if no improvement, then Automatic)?