What size is the capture?
if the screen capture is 1024x768 then your premiere project needs to be the same. If you are trying to squeeze a large capture into DV size then it will look horrible.
If you need to reduce the size for the final video then do it when you export or consider using zooms in which case you need to set the project up at the finished size then move and resize the capture to fit the frame.
http://www.photo-edits.com/podcasts/lightroom_ipod.mp4 (right click save as)
This is 1 that was done in PPro and went from 1024x768 to 320x240 for a podcast so it was necessary to zoom it so it would fit on an ipod screen. Some like the zooms, some don't.
Another consideration is framerate, I capture at 15 fps and then edit in Ppro at 15 or 30fps depending on output, but if you are capturing at 5 fps and the Ppro project is 25 or 30 fps then the software has to make up a lot of frames and it can look horrid if there is any movement.