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Andy
IMO your specs are adequate. Have you tried to convert your clips to mpeg2 and than use them in pd7?
I have gone through this with my flip ultra hd camera which creates clips in .mp4 and it religiously crashed pd7 every time, therefore I convert them with format factory 2.0 and no more crashes, so try this trick to see if it helps.

.mp4 format is notorious in crashing video editing softwares as .mp4 format allows developers to freely change base coding, therefore vendors create their own versions frequently and I don't think any video editing software vendor can keep up with new cameras mushrooming into the wild everyday.
Wired
Have you actually burned a file onto a dvd disc and watched it on a dvd player or you are talking about video quality while previewing and actually rendering.
I have noticed that previewing quality is inferior than actual file burned onto a dvd, and dvd just comes out fantastic.

Most video editor while previewing or editing use a shadow copy which is in inferior quality than original work, this is done to make video editing fast and not to touch actual media file, and remember if your actual video was shot in non hd than you can not make it in hd through a software renderer.

Graphic card and cpu may also affect the final product
Great Mclean, I was looking for this for a while. Thanks
PD7 does not like .mp4 format as far as from my personal experience, therefore I am assuming PD6 does not like them as well, my suggestion would be to convert.mp4 to format of your choice with format factory or similar software such as pazera, super or koyote and than edit in PD.

Remember .mp4 is merely a wrapper or container not a codec, and sorry affair of this format is due to loose developer dependent changes allowed in the specs of the format.
I suggest to convert the final product file into .flv by using format factory 2.0, which is freeware and may be the only software for your all conversion needs.
I am sure most people will like to have a dedicated trim window, as in video editing time is not an essence and In my opinion window trimming is far more better than timeline trimming.
In my experience .mp4 file format does not play well with any video editor I have tried such as corel sony and edit pro, so what I do is convert them into mpeg format with format factory and than use these mpeg into pd7.
Remember mp4, avi and mpegs are really containers only, not the actual recording format.
It took me two weeks to figure out crashes on pd7 as I was using this mp4 files off flip ultra hd which were encoded with 3ivx codecs.
Therefore my suggestion is to convert them into standard compliant container format to use in pd7
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