I double checked and it is on the SP setting, I was really hoping that I had it on LP because that could help explain the problem.
Last night I was playing with some video I had shot in the morning. Again I was in good light and turned the sharpness up and I was still dealing with a slight out of focus grainy image.
As I'm typing this I gogled canon gl2 footage and came up with this video. http://www.youtube.com/watch?v=ACJ8Uq1GTs0
I can see the same video characteristics as far as the image, however I am not seeing the grainy out of focus look like mine is producing.
Again to all that have read and helped thanks a million!