The theory proposed by a friend was that Nikon scales the footage using the nearest neighbor method to go from a resolution of about 800 lines to 720 lines. This was why some lines were discarded.
So all we had to do was find the exact scaling factor of Nikon's method and then reverse it so we could go from 720lines to about 800. The result would leave us with duplicate lines (because we would use the nearest neighbor method again) which would then be discarded and inerpolated.
After counting (by hand!) all the pixels and found the repetitive segments we were able to calculate the scale factor. The magic number is 1.113281 .
It was all downhill from there. And as you can see below the flow is very compact with minimal nodes. It is also very fast to render.
Of course in Fusion you can do all of this in a macro so it is as easy as adding a node to your footage.

I suppose a similar method can be used with After Effects. As long as scaling is done in draft mode and rendered as it is and NOT with best settings. If someone makes it for AFX, please let us know.
UPDATE: It seems that fusion has trouble with some of the Nikon AVIs possibly to a bug in the Nikon avi packager. You can use ffmpeg (free) with the script below to remux them in new fixed avi files. Just make a dos batch file (.bat) with a text editor like notepad and paste the code below
::-----------------------------------------------------------------
for /f %%f in ('dir *.avi /b /a:-d-s-h') do call :Convert "%%f"
echo Finished
PAUSE
goto :EOF
:Convert
echo FIxing %1
ffmpeg -i %1 -vcodec copy fix_%1
goto :EOF
::-----------------------------------------------------------------