Rendering out of phase (pixelated). How can I fix it?

Equipment: Canon Vixia HF20 (set to MXP) and Kodak Zi8 (set to 1080) Alienware M-18x  - i7-2860QM @250GHz – 16 GB ram – Windows 7 Professional Service pack 1 (with all recent updates installed.) NVIDIA GeForce GTX 560M (with latest drivers and updates installed.)
Premiere Elements 12 (Expert mode)
Canon is used for the main picture. Kodak is used for smaller “picture in picture” on top of main picture.
Preset in Premiere Elements 12:  NTSC-AVCHD Full HD 1080i-30
I have used this same camera/Premiere Elements setup with success in Premiere Elements 8 and 10.
When the first video (Canon) is brought into Video 1 track it looks great and no orange render line appears. When the second video (Kodak) is placed in the Video 2 track, resized, and placed in the lower right hand corner of the monitor panel (on top of Video 1) and I click outside of the bounding box it looks fine (as does the Video 1). The orange line then appears above both videos as normal.
The problem is when I render the videos they both become “out of phase,” pixelated, as if I had dragged their bounding boxes slightly one way or the other.
How do I get the videos to render properly so that I can upload the project to YouTube? (This was never a problem with Premiere Elements 8 or 10)
Many thanks,
Randall

The camera manual does not offer any clear information regarding interlaced or progressive.
Here is what information I have been able to obtain from other sources on the web:
<<As far as I can tell, I am recording in 1920 x 1080p (not interlaced). I have sent a question to Canon tech support, but they tout that the Canon Vixia HF20 records in full 1080p. I have the ability to set it to a 24p or 30p frame rate, and apparently, that records in 60i.>>
  another sources adds:
<<My recording options are:
- 60i
- "PF30" which is described as "30 frames per second, progressive" but then it goes on to say "Using this frame rate, video is recorded as 60i"
- "PF24" which is described as "24 frames per second, progressive. Using this frame rate will give your recordings a cinematic look." but then it goes on to say "Using this frame rate, video is recorded as 60i">>
My camera is set to the default "60i"
I installed the latest version of Quicktime
I added the tracks to the timeline as suggested above and used your method for adding PiP 25% LR.  When I rendered a section of the video, it was pixelated as mentioned above (no change.)
As I mentioned before, this was not a problem with either Premiere Elements 10 (Using this computer) or 8 (using another computer). The only reason I upgraded to Premiere Elements 12 was that Premiere Elements 10 would not work when I updated the video drivers and software.
Many thanks for your help.
Randall

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