New Item feature distorts my clip

Learning Premiere. I have a video file mp4. I import in Premiere cs5. Using the New Item feature, I drag my clip on this icon as shown in Adobe TV, creating a new sequence. However my clip looks total rubbish, distorted and low quality.

Ok, using Media encoder I chance my format H.265>Youtube Widescreen HD, same results. My original clip is 1280 x 720 30fps.