You can not crop 1080 video in a 1080 project... so why not start with the HDV 720p project preset. Then with the footage on the timeline right click on it and deselect Scale To Frame. You can then drag the position of the video in the monitor window so that the part of the frame you are interested in is in the monitor frame. This will save cropping the video. Otherwise still use the 720p project eset, deselect Scale to Frame and crop away.
Then you can right click on the video in the Timeline and select Field Order, then select Always deinterlace and then export using the MPEG2 720p export preset (Share>Personal Computer>MPEG the preset HD 720p.
Thank you. I tried what you suggested on a small clip and it worked very well. I have a followup question though. On a portion of the clips, I'd like to smoothly move the cropping window around (pan and scan?) Is there a way to do this with key frames or something similar?
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Yes you can keyframe a smooth movement of the cropping window. It is easier if you followed my first suggestion of having the video with Scale to Frame unselected and moving the video around rather than using the crop effect. If you click on the clip and open the clips Properties panel (click the Properties icon above the timeline to the left) you can select Motion. Within this there is Position and Scale... here you can set keyframes to move the "window" around and or scale it. See the tutorials on Keyframing over at Muvipix in the Complimentary Products section under Tutorials and Steve's Tips: