Thanks for the help. I tried these settings and got GREAT results:
Import the footage, then Interpret footage, Seperate Fields, Lower First, Motion Dection On (Seems to be the key to making interlaced video work)
Render Settings- Quality Best, Resolution Full, Field Render Lower First
Output Module- Click on lossless, Format Options- Microsoft DV
I’m getting back what looks like better footage than I’m putting in!