Check out the specifications:
AV700
Display: 7" LCD 480x234 pixels, 262 000 colours
Video recording: 640x480 @ 30 f/s
Video playback: 720x480 @ 30 f/s (NTSC), 720x576 @ 25 f/s (PAL)
AV500
Display: 4" LCD 480x272 pixels, 262 000 colours
Video recording: 640x480 @ 30 f/s
Video playback: 720x480 @ 30 f/s (NTSC), 720x576 @ 25 f/s (PAL)
The AV500 have a better screen display specification and using a smaller screen of 4", the display would definately surpass that of the 7" display given a movie with the same resolution.
The sorce for recording plays a part too, have you tried recording from DVDs?