Hmmm, that sounds strange. I've got
a Line6 POD and
a Sony MDM-X4 (also minidisc) and my recorded POD stuff sounds terrific. It's a great tool.
Generic suggestions:
1) Is the signal coming out of POD the mono signal? It should be (assuming you're not doing stereo effects).
2) Is the AIR switch engaged? That'll help.
3) Is the signal out of POD so strong that it's overloading the Yamaha inputs? That can happen. Adjust your trim levels.
3) Turn the Channel Volume knob on POD to 10 and then adjust the master volume out on POD. Finally, adjust the trim recording level on the Yamaha.
4) Monitor the sound on the Yamaha as you record. Should be identical to what the POD puts out.
5) Final option: Record the guitars clean, then run the signal back out of the Yamaha, to the POD, dial in your tone, and re-record on the Yamaha. That may help you pin down what it is that makes it sound bad. (It's also how the big boys add effects, so it's a great technique to learn. The POD Manual discusses this.)
Hope this helps -
K-wey