<p>PNG images appear "fuzzy" in flash CS3. They are very blocky and appear unanti-aliased (if that is a word) Does anyone have a fix for this? Is there some setting I'm missing? </p>

Are you loading them into your SWF through a loader? Or are they imported into your library as bitmap symbols? If they are loaded in try calling Bitmap.smoothing = true; or if they are in your library go to the Bitmap's properties and click Allow smoothing.
Other than that I would check to make sure you don't have some crazy above 1 alpha setting or that you aren't messing with the scale of it in your code at any time. Those two options tend to mess with bitmap images fuzziness.
If all else fails you'd probably want to look into turning your images into vector based graphics, then they'd always look exactly how you'd want them to regardless of scaling.