USB is slow and can't handle the full bandwidth of DV video and audio. DV needs about 34 Mbps, USB (1) can only handle about 12 Mbps, so the camera has to compress the video or else drop frames to keep up. The extra compression is the likely culprit in your video quality problem.
Firewire can do 400 Mbps, so 34 Mbps is no strain.
1) There are two types of USB now. The one your camera has is called USB-1. The newer type is called USB-2 and can supposedly handle 480 Mbps, but there's so much work handling USB protocols that the actual effective data rate is somewhat less than Firewire. Still more than fast enough for DV though. I don't know of any cameras that have USB-2 ports yet.
Fav quote - "Experience is whatcha don't get 'till ya don't need it no more."
System - Athlon 1.4GHz, Win98, Hauppauge PVR250 receiver and compressor.
Software -Magix Movie Edit Pro 10, Nero 6 + NeroVision Express, Moho 4.61, PSP 8.1, Bryce, Quicktime 6.52 pro, Goldwave 5, DVD-Lab.
Cameras - Panasonic GS9, Canon ES8400V, Canon EOS D20 and Canon A70