pixilation is usually the result of a mismatch between the PSD file image dimensions and the timeline properties. Does your PSD have dimesions of 720 x 480 pixels? (you said you were using NTSC and 0.909). Since you are working with photoshop, set the image size dimensions to pixels versus inches. This saves you from having to convert inches by multiplying by the image resolution.
if your image is, say, 72 x 48 pixels--PPro has to stretch each dimension 10 times--the result is pixiliation.
All image scaling should be done in PS
You are aware that PS has new image defualt sizes that correspond to all of the video formats?
If I read correctly, your Preview is good, but it looks bad in the thumbnail in the Timeline. Is that correct? If so, don't even worry about that thumbnail. To judge the image, as well as you can without a calibrated NTSC CRT monitor run through an A-D device via FireWire, set you Program Monitor to 100% Magnification, and the Quality to Highest. Drag the corner of the Program Monitor until you have filled it up with the image. Still, that is an emulation, but should show things pretty clearly. To do better than that, the NTSC calibrated monitor is the only way to go beyond.
I assume from your comments that your image IS sized for the NTSC Project, as you used that Preset in PS. Is that also correct? This is what you want to do, as the Scaling algorithms in PrPro are not as good as those in PS and offer less control.
If I am totally confused as to where you're seeing the pixalization, let me know where I veered off the tracks, please.