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The best formats to use for any compositing application are lossless. I would suggest Quicktime Uncompressed, Quicktime Animation (100% quality) or Quicktime Pro-Res for the best results. The file sizes will be much larger than your MPEG2 files, however. That's the thing with video compositing - if you're serious about it, you need lots of hard drive space! :-)
Thank you! My problem though is that because the camera I use is a Sony HD camera with the format AVCHD, I have to bring the footage into the editing program Studio first and export it into a file that I can then import to AE. And in Studio my options are formats like Windows media for HD and Mpeg2 for HD. There's AVI but not for HD and no Quick time option. That's why I'm using Windows media, because out of these it seems to have the best quality.
Have you downloaded the trial of Sony Vegas? It handles AVCHD and may provide more options to export...
No, I haven't done that, but yes looking at it it does handles AVCHD and Quick time and other formats. Thanks so much, that wonderful!! Finally a solution!