Came up with something that seems to work well for playback...
1) Process the original MTS video file in ClipWrap for OSX (has free demo)
It's a super fast lossless conversion as well.
This converted video plays fine on the iPad 3 once you get it there.
To get it in the photo album without using iTunes :
(Probably an easier way to get it in the Album?)
2) copied video to my WD Live drive on the network and
3) using WD2GO Pro clipped it to the iPad and
4) opened the clip in iCabMobile , which offers a move to album.
Now its in the album and plays back fine,
can delete the wd2go clip and iCab download.
iMovie will import it to the timeline but the video in iMovie is black.
At least I can get the raw footage to the iPad 3 and play it back.
Found a link that mentions how to modify a mp4 for iMovie editing
have not tried it yet, other than ClipWrap:
http://www.wired.com/gadgetlab/2011/05/how-to-convert-video-to-work-with-ipad-imovie/