John, I’m having the same problem, also in Final Cut Express. Whenever I apply Twixtor, my footage becomes very jerky, and oftentimes will have a lot of smearing, even though I filmed it against a simple background with no other motion.
So…I don’t have an answer for you. But I thought I’d bump this post up a bit so hopefully someone who DOES have an answer will see it.
(Just to note, I followed that exact workflow suggested by Sean above, and my footage still looks terrible. Not sure what I’m doing wrong).