FCE: Issue with moving from viewer to timeline

Hey guys,
Back again!

This time I'm having a problem with, as mentioned above, moving footage from Viewer to Canvas/timeline.

Basically, I'm trimming in the viewer, all is good. Then when I move it down to the timeline it cuts off the bottom of my clip, changes the aspect ratio and scale.
I've never had a problem with this before. Am I doing something wrong?
The only thing I notice is that the frame size of my sequence is 720x576 however all of my footage is 640x480.
I don't see how that could be the issue though? Even still, I can't seem to find a way to change the sequence to 640x480.

I could post an image of my setup if someone could help me out in how to upload it?

Hopefully this all makes sense.

Thanks guys.

 

Never mind.
After digging deeper and deeper into google, I have found FCE does not support those dimensions. So I need to convert to 720x576.

Will I lose quality if I do this?