Editiing DV-AVI will give you a smoother time with video editing, but if your ‘core’ (processor) can handle it, I would edit the MPEG-2 files as they are – you might have some renaming to do (.mpg will probably work fine).
I’d do an AVI conversion if the stuttering during editing/playback becomes unbearable. Just realize that DV-AVI is not a raw format – it uses compression too. Having MPEG-2 converted to DV-AVI, you’ll end up dealing with both types ofcompression schemes(noticeable information losses) of both formats. You probably won’t tell the difference, considering that one might exist.
Anyway, if MPEG-2 editing gets virtually impossible to work with, a DV-AVI conversion is your best bet. Have you looked at AVS Video Converter? Also, make sure your settings don’t kill quality of the end result. You might need to compare the converted and unconverted side-by-side in order to tell.
