Sketti, I had the same issues with importing the MGEG4 files into windows movie maker. You have to convert them. I'm using an 'ahem' version of AVS Video converter. Gives you the option of converting to various files types that you can import. Works a treat but is fairly slow (i'm converting a 16 minute 720p file atm and it's got almost 2 hours to go). The quality is top notch though.
I experimented with smaller files to get the best quality. Settings 3-5 are best on the cam (with setting 3 - 60fps great for slo-mo stuff) Setting 4 gives a greater field of vision (4:3) but setting 5 is my mode of choice (16:9 widescreen @ 720p).
I found these movie maker settings work pretty good when publishing:-
Select 'more settings' and scroll down to 'Windows Media HD 720p (PAL)(5.9Mbps) for best results. The option above (3.0 widescreen) works pretty good too, but you loose a little quality.
I'm on the lookout for alternative video editing software as moviemaker is ok for free, but i'm sure you can get better results with the right software.
Here's a wee test video I made the other day using GoPro setting 4 http://www.vimeo.com/8458172