I have done some recent compostitng over my HDR-FX1 HDV footage. I had no pixelation issues. I used the text generator in FCP and Motion. You may see pixelation due to FCP’s Real Time (RT Extreme) playback feature, which will degrade unrendered video or layers ( text in your case ) to maintain a real time playback. The quality of real time unrendered playback automatically varries based on your systems specs.
Cheers