FC Express will edit your video just fine. You'll have to export it out after editing and I don't remember if AVI is an option ( I upgraded to FCP years ago). The K-7 is motion JPEG in an AVI container. And, yes, you will get the same resolution. FCE and iMove convert your source on import if I recall correctly.
Apple has an editing format called ProRes 422 of a few flavors. I don't think you have the capability to convert to that but it is a good format for editing when you need to do a lot of manipulation to your video. You'd then export to format suitable for whatever the target might be, iPod, web, DVD, etc.
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