AVCHD and premiere problem!

Computer I have to use is triple-core, 2.10 GH.z, 32-bit Vista, RAM 2 Gt, so not the best one. I shot my footage with Canon legria HF200 and Im using Adobe premiere CS4.
Main problem is that I can't see the playback in realtime, it's laggy and Im getting pissed off.
First of all, should I just covert these mts-files to some other format. I believe my computer can't handle those huge AVCHD files. The footage is for school movie so the quality should be good but it doesn't have to be the best.
What sequence preset should I choose when I'm not even sure about the settings of the camera. I know its AVCHD and it was 25fps and 1920x1080 so do I choose AVCHD-> 1080i or 1080p or what? And how about then if I convert these mts to some other format, which setting do I use then?
What format do you recommend? AVI??? Quicktime??? What should I do?
Thanks for the help!

Convert AVCHD to HDV
http://forums.adobe.com/thread/390605?tstart=0
or use Cineform Neo Scene http://www.cineform.com/neoscene/

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