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What type of camcorder is this video coming from, and is your project set up for an MPEG workflow?
It's not from a camcorder. It's a converted AVI file with MPEG-4 compression. In any case, I converted the original file to MPEG-1, and that solved the problem albeit at the cost of some degradation.
How are you converting MPEG4 to AVI -- and are you certain you're converting to type 2 DV-AVI and not some other AVI codec?
These details can significantly impact your video quality.
It was AVI (MPEG 4, MP3) to MPG (MPEG 2, MP2). But never mind, I just reconverted the AVI file with slightly different specs and that solved the problem. Thanks for trying anyway.