Try this:

1) Place the timeline playhead where you want to capture the still. Either drop a Marker here (M key) or split the event (S key) so you can line up the still later. (If you want to move the underlying video event instead of punching the still on top of it, use Split.)
2) In the preview window make a note of the current setting of the Preview Quality setting and then change it to Best (Full).
3) Click the "Save Snapshot to File..." button. You will be invited to name the file or just use the default. The .jpg file thus created will be in the proper aspect ratio to match your project and should show up in the Project Media window.
4) Drag that file on to the timeline as an event on the Video Overlay track so the left edge snaps to the location you set in step 1. You can drag the right edge of the still event left or right to size appropriately. Depending on the amount of detail and type of project (SD or HD) you may also need to right-click on the still event, select Switches, and check on "Reduce Interlace Flicker."
5) In the preview window restore the Preview Quality to what it was before (I usually go with "Preview (Auto)."
6) Play it out and see how it looks.