What I do when I put holes in cylinders is first make a cylinder with high edge count (to round things out) and size it using the radius feature. Find the radius and length of whatever you want. Then I pull out a calculator and find the circumference of the cylinder and make a plane with the width as the circumference and the length...the length. throw on turbosmooth modifier and then a bend modifier ontop of that. (direction, axis depends on which view you made it in) angle should be 360. Model the cylinder in a plane and the bend will make it round for you.
Your pinching would go away if you had created a cylinder with 2-3 times as many edge loops. As mentioned, modeling on a plane and using the bend modifier is the most popular approach to issues like this.
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thanks for the input.