As for the preview coming up blurry - the preview settings for your Sequence may be set to a lower resolution, OR it's playing back in half (or lower) resolution - though if you stop playback it should go back to full res. The latter is easy to fix - below your main video in the Program Monitor, there's a dropdown that says "Full", "1/2" or "1/4". This is the playback resolution, and it allows you to play stuff in real time if your computer couldn't handle it in full resolution.
If your Preview resolution is too small, go into Sequence Settings (under the Sequence drop down menu, right at the top). At the bottom of that window you'll see a box for Video Previews. I always have mine set to "I-Frame Only MPEG" at the resolution of my sequence (1920x1080). It might be defaulting to something like Microsoft AVI at 720x480.
Again, that's with Premiere Pro; I don't know how different Elements may be to handle those same things. (Also I use CS6 which is a few years out of date at this point but the concepts are the same.)
Boter, formerly of TF.N as Boter and DarthArjuna. I like making movies and playing games, in one order or another.