So, having applied two filters in FCE 4 the image is improved.
I applied 'de-interlace' and 'flicker'.
Then I exported the file as .mp4, H.264, 25 fps, at 960X540 pixels with a data rate of 6000 KBPS.
Now, when I view the files with the PS3 set to 720p or 1080p the image is improved. Now if I pause the action the telegraph pole remains as a single object, no duplicates to the left and right.
Also, I can now read the road signs that we were passing, as opposed to the previous effort where the road signs were illegible.
I believe this is due to the image now being progressive instead of interlaced.
I changed the frame rate because I realised that the camera is capturing at 1080/50i, which is 50 interlaced frames per second, if one is to change that to progressive that becomes 25 frames per second.
All of this has improved the image, but crucially, the panning issue remains, it is less intrusive and these setting seem to minimise it, but it is still present.
The conclusions are, if your source is interlaced, set your output device to interlace also. If you are watching movies on the iMac, better 'de interlace' as the imac screen deals poorly with interlaced video.
Reducing the pixel dimensions allows you to also reduce the data throughput rate, and of course the file size.
For me a good compromise is the 960x540 size as mentioned above, which is, also the default for the output to Apple TV from iMovie 08.
So for me, the answer is either edit in iMovie 08 and output to Apple TV preset, or edit in FCE 4 and output as detailed above.
For some reason the Apple TV preset in FCE 4 is screwed up and only outputs in 4:3 dimensions, so one just has to do it manually.
As for the panning issue, well I just do not know if I am ever going to achieve 'smooth' panning.
I am starting to wonder if the issue is that my camera is just not up to the job, or if the current state of AVCHD at a consumer level is the problem.
i wonder if one took the other approach to HD i.e. switching to HDV.
I would love to test the latest HDV 1080p against the latest 1080p AVCHD to see if either resolve the issue.
Can anyone offer an informed opinion? Does this same panning issue exist in the latest 1080p AVCHD cameras? or the latest 1080p HDV cameras ?
Mine is an older model, it's the Sony HDR-SR5E. Is my camera just not 'good' enough?
So, next attempt, I took the 'raw' AVCHD files from the camera and moved them to the iMac. From There I dumped them on an external hard drive which I attached to the PS3.
This resulted in files that I could play in the PS3 as AVCHD as the PS3 can play AVCHD files.
The image is perfect, the panning issue is no longer apparent.
So, the conclusion, it is the process of importing to FCE or iMovie (i.e. transcoding to .MOV files) that introduces the issues. One can then reduce these issues but can not eradicate them.
What I need is the ability to edit and output in the original AVCHD format within iMovie or FCE. Sony Vegas software can do this, but is only available for P.C.'s not MAC's.