Even my SD700IS shows grainy when using 800ISO. Check and see if you have auto high ISO engaged, if that's an option. I've found that keeping the ISO as low as possible, not exceeding 400, helps my pics stay clear. The IS is wonderful on this little camera, makes a tremendous difference! Hmm, are you using the digital zoom a lot? Try to get close enough to stay within the optical zoom and you'll find your best pictures.
Hope this helps! I Love my 5D, but take a lot of pictures with my SD700 simply because it's easy to always have with me, and sometimes it's surprising how close the quality of the pictures are when compared to the much greater resolution of the 5D!
Shoot, shoot, shoot, then shoot some more! I even use it to check labels and prices so my wife can see what I'm looking at, show her the pic, then go back it it's the best deal! lol
Happy shooting,
Dale