First Time Post- GoPro Footage workflow

I'm beating my head against the monitor with Final Cut so I'm here looking for some help. I have used FCP for many SD projects in the past and they all worked out great. I'm no pro, but this is killing me... Also this is my first venture with HD and GoPro.

Anyway I see you are a FCP user so I'm hoping you can lend an assist!

So here is my issue... As soon as i do anything to the video, the output looks totally grainy.

My workflow:
Mpegstreamclip to Apple Intermediate Codec:
www.dropbox.com/s/xr66g8hjbf8vgz4/MPEGSTREAMCLIP%20AIC.JPG?dl=0

Conform the frame rate to 29.97 with Cinema tools.
Create a new FCP project
Edit the sequence settings to:
www.dropbox.com/s/zl52xajbhmnoszm/Sequence%20Settings.JPG?dl=0

Then I'm using the Share function to H.264:
www.dropbox.com/s/b8b114ualv8hgxq/h.264%20settings.JPG?dl=0

If i do nothing to the video other drop into the timeline the video result is clean (hopefully youtube doesn't degrade this too much):
(look at the roofline at the very beginning of video)

But if i do something as simple as add a color corrector, the video looks like crap, all blocked out:
(look at the roofline at the very beginning of video)

I have tried so many different combinations, I can't remember them all, but they include: ProRes 422 and Apple Intermediate Codecs for initial transcoding the GoPro footage and also in the FCP exports (not just Share as mentioned above).



Any help you can offer would be greatly appreciated!

Final Cut Studio 3 with FCP7