blurry mpeg2 from media encoder

I have some 1080i HD footage shot with an hvx200 and captured with OnLocation that I need to export to MPEG2 as SD 720X480 footage. I tried using media encoder (premiere pro cs3) and the footage comes out blurry no matter what settings I use. Here are the settings:

Format: MPEG2
Quality: 5
TV Standard: NTSC
720X480
fps: 29.97 drop frame
field order: lower
Aspect ration: 4:3 (0.90)
Profile : high
Level : high
Bitrate encoding: CBR
Bitrate: using 4 it comes out ok with the blur I am talking about. using anything above 10 the video is too pixelated to view.
M frames : 3
N frames : 15

If I import my HD project into a standard NTSC project I can get it to look great, but for various reasons I won't go into here, I want to avoid that extra step in the workflow.

Any ideas on why it is blurring the footage when I encode directly from HD and try to letterbox it during the encoding process?
 
Unfortunately, that's what Premiere does if you try to export SD from an HD timeline. Throws away a lot of the sharpness. I've experimented with this across different codecs and the only way I can get it to look good is to shrink it in an SD project.
 
Bummer. I'll just stick with the extra step in the process then. I've tried just about every possible setting in encoder as well. Thanks for the help.
 
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