Although After Effects is faster when working from uncompressed material (given a fast working disk, otherwise it might even slow down due to the filesize of the uncompressed material) - the picture quality is the same, whether you work directly from the h264 or convert to uncompressed first. Working directly from h264 means you save the disk space but AE may be a bit slower because it needs to decompress the stream and convert to RGB before the other operations.
And back to the original problem: looks to me like the image is completely blown out to max white there. Nothing simple you can do about it now. In theory you could try to replace the blown out material with a still image that you track into the frame.
Barend
Raamw3rk - independent colourist and visual effects artist