From another forum:
Ingesting as a transcode to ProRes will yield no image quality benefits; it will just take up more storage space. Further, it is an unnecessary transcode step. It is a legacy feature from before FCP was able to handle a re-wrap (‘native’ ingest). The only real use for this would be if you needed to ingest XF footage to .mov for another app/workflow/system which cannot cope with MP2/longGop but can handle ProRes. Since all modern Mac workstations can easily handle MP2 editing overhead, there is no need to ingest to ProRes for an edit directly inside FCP, which will stay inside FCP.
However, for best quality, you should most certainly set your sequence render settings to ProRes or uncompressed. This is where you will see the benefit of ProRes over native MP2. All image manipulation you make should definitely NOT be rendered back to MP2 because then you are re-compressing the images back to a highly compressed acquistion codec. With a few layers/levels of manipulation you will be able to see the difference. We always render to uncompressed where drive space and system speed allows but ProRes on FCP or DNx on Avid are a good second choice.
Alf