First, I'd recommend you reduce that photo size to 2000x1500 pixels. You'll get less of the jiggliness because it will be closer to the resolution of the video (which is 1920x1080).
Then, ensure that your project settings are set for 1920x1080. You can check this under the Edit menu.
If your project is not set up for 1920x1080, you'll need to restart your project. Version 9 does not let you change project settings mid-project. When you start a new project, be sure to select a project preset like Full AVCHD 1920x1080.
Finally, right-click on your photo on your timeline and select Field Options, and set your Field Options for Flicker Removal.
Then, just for good measure, right-click on the photo again on your timeline and make sure the Frame Blending is checked.
As for your output, what do you plan to use your output for? To burn a BluRay disc? To post to Youtube? To use in another project? Your final use will determine what the best output option is -- and certainly may NOT be AVCHD M2T.
I see that you've already got this topic going in another thread.
Please don't start more than one thread with the same topic.
I'm going to lock this thread to avoid any further confusion. Please continue this discussion in your first thread.