I just tried importing my Canon Vixia HFG10 HD video clips and the results look terrible. They look really good on the camera but in Premiere Pro 5.5 they don't.
I loaded the clips in the media browser and did a new-sequence-from-clip to match all of the specs.
My inital browsing for solutions recommended buying some converters but after buying PP and a top-line camera I am not too jazzed about going to the wife and saying I need to buy more.
You are at least partiallly (and maybe 100% correct). While my monitor window looks like crap the exported output was fine. I will check you suggested setting and see if it helps.