To me it looks like either a focusor camera shake problem... If it's Ken-ware it should be easily correctable :-)
Can you get a sharp (though smaller of course) image without the TCON17? Do you get sharp images with TCON17 on other subjects? Disfunctional TCON17s have been discussed here before...
I suggested to lock focus (but I don't have the FZ5 so I don't know exactly how that works) as autofocus doesn't always succeed at max zoom length with the converter attached. So, I wouldn't trust it. I use autofocus at first and then I 'lock it' by entering manual focus on my FZ30. Then I use my remote (or timer) while watching the LCD and occassionally re-focus if necessary. It usually takes a few shots to get a real good one!