Does it "look terrible" when you play the H.264 in QuickTime Player? If so, it would mean your source video is crappy and there's nothing you can do about that.
But even more likely is that you're a) using a Sequence with settings that are different from the clip; b) watching the image on the Canvas, where you're not supposed to; and c) not rendering. All three contribute to poor image quality when monitoring.
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