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Editing the AVCHD video natively is probably the best strategeom, though it may put a ton of lag on a non-core (e.g. Celeron) processor. If the speed handler is not a core, 2.5 GHz for editing AVCHD should probably be your minimum. Editing MPEG-2 footage on my duo-core 1.66 GHz processor isn’t bad at all with Sony Vegas Pro 9. The lag picked uptons more inCyberlink PowerDirector 7 (consumer video editing software). From my experience, the processing to lag ratio varies A TON among the software type. Pro quality software will generally edit more smoothly and produce less lag.
Converting AVCHD to DV-AVI will limit the quality reproduction to the capabilities of both formats. For example, AVCHD and DV-AVI use different encoding systems (compression techniques and different types of losses). Converting highly compressed formats to DV-AVI will generally involve losses that are not noticeable enough to care. If the slow nature of AVCHD drags heavily, a DV-AVI conversion will probably be your best bet.