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VOB/MPEGs use a different interlacing format (than AVIs) to create their video frames. If you right-click on each VOB or MPEG on your timeline, select Field Options/Reverse Field Dominance, your output won't look jiggly.
(BTW, if you're working on a project made up entirely of MPEGs and VOBs, you can simply choose the project settings preset for DVD source video and reverse field dominance will be applied to all clips. Just another tip from my Premiere Elements 7 book! ;) )
Steve - thank you very much, I made the Field Options change to each vob clip in the timeline, rendered the project, burned a DVD and the project is now OK.
Related question - would MPEGStreamclip convert the vob files to DV-AVI format and take care of the reverse field dominance issue?
Indeed it would, Howard. Particularly if you follow the steps listed in our FAQ: