Your sequence settings do not match your footage. Drag a clip from the project panel to the New Item icon at the bottom of the project panel and a new sequence will be created that matches your footage.
If you have already started editing and don't want to redo it all, select everything in your current timeline and copy/paste into the new sequence.
That seem to have done the trick although it has made the footage seem a little bit ripple-y, as if it were in a stream/pond. (That's the only way I can describe it!) Any ideas how I could fix that?
Tthanks so much for your super-fast respose!
What codec and format is your source material?
Have you set your Paused Resolution and Playback Resolution to full?
Can you post a screenshot of the frame you posted in your original question, but now from the Program Monitor in the new sequence, so we can see what you mean?.
If (for some reason) you're locked in to using a preset that DOESN'T match your footage you can also right click on the clip in the timeline and select "scale to fit." You can multiselect clips (via the A tool) and change them all at once. This is especially helpful if, for example, you've got HD footage destined for DVD or 720p BluRay and you want to be able to adjust framing in post...
Thank you, I have now set my playback resolution to 'full' and it looks great now.
Have a great day