It looks like your tension is off. Did you check the tension on a straight stitch first? Try setting that. I'm always confused about whether to increase it or decrease it, but you can easily try several settings and see what comes out best.
Had you tried the machine in the store (your specific machine, not just the same model)?
And you're right -- the manual is NOT the best. I get a lot more help from the yahoo group. I think you will LOVE this machine once you get going on it.