Canon Vixia HFM40 video quality issues in Premiere Elements 10

Hi,
I am trying to edit video from a Canon Vixia HFM40 camcorder in Adobe Premiere Elements 10 on a Mac, but the video playback and the exported video has quality issues. Playback is not smooth when there is a lot of movement in the picture. It looks similar to interlacing issues, but there are no horizontal lines when the video is paused. Any ideas on how to solve that would be be much appreciated.
Here are the specs:
Video Format (Canon's XFP mode):
- AVCDH MPEG-4 AVC/H.264
- Resolution: 1,920 x 1080
- Bitrate: 17 Mbps
- Frame rate: 60i or 30p (problem occurs in both instances)
- File extension: MTS
Workstation:
- Fall 2010 27" iMac, quad core 2.93 GHz Intel Core i7
- Mac OS X Lion 10.7.2
- 12 GB RAM
- Adobe Premiere Elements 10.0
Project Preset: AVCHD Full HD 1080i 30 (several other presets had the same result).
Thanks.
Ralph

OK, I've been doing some more research and I think I found the problem. The choppy picture is due to Premiere Elements and VLCs inability to properly de-interlace the 60i video. It gets played back in 30p, which does not create horizontal lines, but it is a lot more choppy than the native 60i, especially when there is a lot of movement in the picture.
I verified this theory by installing the latest VLC beta (from http://nightlies.videolan.org/) and playing back my source MTS file with De-Interlacing set to "On" and De-Interlacing Mode set to "yadif (2x)". Those settings did not work with the current official relase of VLC (1.1.12). The 1.2 VLC beta is not fully functional yet and I am not getting consistent results, but when I play that video several times, then after about 3 or 4 tries it plays back perfectly smooth, just like it is when playing back the native file from the camcorder connected to the HDTV via HDMI.
That also works with video exported from Premiere Elements 10 with preset AVCHD M2T - H264 1920 x 1080i 30.
The video is still choppy when played back in Premiere, but that does not really matter, since the output file produced by Premiere can be played back with VLC (assuming that the final build of VLC 1.2 can handle the files correctly).
-> Hunt: thank you again for your help.
Ralph

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