Two things. Don't use the incamera flash. Get a shoe mount flash and a good diffuser. I like Gary Fong's as it is big and has a detachable dome. With those, point the flash at the ceiling and you should get an evenly lit room without harsh hilites.
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Amish Ed
Dual 2Ghz G5, 4GB, running 10.3.6 w/QT 6.5.2, Black Majic DeckLink, AE Pro 6.5 w/BCC and Invig. 3D, PS CS2, AI CS2, FCP HD