FCP 7 crashes when choosing "yes" to changing of sequence settings for Flip

I've been doing quite a bit of work with the Flip HD video camera recently. I grew tired of rendering everything, so decided it was time to finally upgrade from FCP 5 to FCP 7.
However, FCP 7 crashes every time I try to lay down video files from the Flip camera onto a timeline.
Upon laying the files down onto the timeline, I am prompted with the message asking if I want to change the sequence settings to match the video. I click yes and immediately get "General Error" and FCP crashes.
I tried trashing the preferences. same result.
I tried updating FCP 7 to FCP 7.0.1. same result.
I even tried updating fixes for iMovie as if that would have anything to do with it. same result.
I'm currently rendering it out the same way I had been in FCP 5.
Any advice or ideas?

AVC is h.264, which is not a work-able editing format, it's a delivery format (and a consumer video camera acquisition format suitable for holiday videos going straight to YouTube), that's why you've been having to render all the time in FCP 5.
Now you're in FCP 7 and it's asking if you want to change the sequence settings to match the video, but there is no sequence setting to match AVC/h.264 so it's freaking your computer out. Still, it shouldn't crash, but that's the problem i believe.
You need to correct your work-flow by transcoding your media into something usable like ProRes, or you can choose not to change your sequence settings, and render the timeline as you have been doing in the past.

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