Peter,
I agree with Steve that seeing the footage (I would post a short piece, both with and without the Shadow & Highlight Effect), will be helpful.
With the Auto Effects, if there are changes in the lighting, within the Clip, one CAN get what I would term a "strobing" where the Effect attempts to apply the correction, but then when something changes in the Clip, it can "seek" a bit, to try and change the correction. Though it looks different, it is sort of like early aperture control on lenses, where the auto aperture would "seek" to correct the exposure, and at a change, would cause strobing. Same thing for auto focus, when the subject to sensor distance changes - the auto focus seeks to regain focus, and the initial changes go into and out of focus, until the sensors can finally lock in on the focus.
With Auto Effects, it is often better to Cut the Clip, where changes in lighting, or exposure occur, and let the Auto Effect work on just that portion of the Clip. The Auto Effects work best when there are not changes in the lighting, or exposure, and everything (except for subject motion) stays the same.
Good luck,
Hunt
