Are you working in hi-def or standard def?
If your ultimate goal to output a DVD, BluRay, post to YouTube or port to an iPad? The settings are different for each.
The original material was shot in HD PAL, to produce a widescreen end product. I would have thought that I needed to import the RAW files rather than an encoded file. The ultimate could be to produce a Blue Ray. It seems wrong that in order to work on the files on another project I am using a new generation rather than originals. Any new generation can result in degradation.
There is no such thing as RAW, when it comes to video. The video you imported was adjusted, compressed and codified by your camcorder. Whatever that camcorder was.
Now, if you can please tell us how you plan to output this video, we can answer your question.
OK, I want to ultimately output to Blue Ray. I am aware that the files from the camcorder have been processed. Its just that I want to reduce the number of times files are processed/reprocessed in just transfering before manipulation.
For HD, I like either the Lagarith Lossless, or the UT Lossless CODEC's, for my intermediate files. This article goes into more detail, and has links to each: http://forums.adobe.com/thread/875797?tstart=0.
If one were to also do a DVD, then I would recommend Sharing to DV-AVI from that combined Project, then Importing that into an SD DV Project (PAL in your case), and doing the authoring, with Menu Sets, Chapter Markers, etc., there, using that DV-AVI.
As I say in my books, if you are working with hi-def and you plan to assemble your videos for output to BluRay, you should output each segment using the Share/Computer/AVCHD using the M2T 1920x1080 output setting.
This will produce videos that will mix perfectly in a project set up for Full AVCHD 1920x1080.