I looked up the camera, and I see it also does still images, with a 1 megapixel sensor. Are you capturing from video, or from stills? The video, at standard def. would only be around 0.35 megapixels (720 x 480 if it's NTSC), so it would be a lower resolution. Most of us are used to finishing our films in 1920 x 1080 HD by now. And even that, on a computer monitor with high resolution, (like mine with 2560 x 1440) looks a bit soft when stretched out to full screen, and a bit small when shown in a window at its actual resolution. Standard def looks very low res, because the rest of the monitor is so much sharper. It would also have a fair bit of compression, in order to get the data rate down to something the camera can save in real time. 1 MP, on the other hand, is pretty close to 1280 x 720 HD. (Depending on the aspect ratio, you may need to crop top and bottom to get a 16:9 video image, so it might be less than 1280 wide but a bit taller to come up with that 1 MP figure.)
Video cameras also have less dynamic range than either film or DSLR cameras - they can't handle as wide a range of light to dark, so the highlights tend to burn out or the shadows go black and lose detail. They also tend to use gain to compensate for low light, which makes them go grainy. DSLRs and film cameras, on the other hand, can take a long exposure (I use 1/2 sec to 2 sec exposures) to get more light so their images still look clean and sharp. I don't know if you can set exposure time when your camera is in still mode? You can't in video mode, because video has to capture 25 (PAL) or 30 (ntsc) images per second, with some time in between, so they are pretty much stuck with around 1/60th of a second.
How are you capturing and saving your images, do you use frame grabbing software? Dragonframe is pretty much only for use with DSLR cameras connected by USB I believe, but some others like Stop Motion Pro work with a variety of camera types. How do you connect the camera to the computer?
The article I saw said it has optical zoom, not just digital zoom, so I'm not sure why the image looks worse at the telephoto end of the range. You would get less depth of field at telephoto, more at wide angle, so maybe not everything is still in focus? Maybe that lens lets less light in at the telephoto end? Quite a few zoom lenses have some change in effective aperture as they go through the zoom.
Can you post a couple of frames of your animation tests, to show what you mean?
I'm guessing really, because I went from 16mm and 35mm film cameras to a 6 MP DSLR, and never animated with video cameras - only used video cameras for video assist/preview images in Stop Motion Pro, not for the final frames. So as long as the video let me see what I was doing, I didn't worry about the resolution. I do know that my HD video camera shooting live elements doesn't get as good an image as the same pixel size cropped from my DSLR images, for all the reasons I went through.