Are you using the proper preset for your Premiere Elements project. If you are and you use the Video Importer to bring the video from the camcorder to your computer (rather than "prepacked" software) you won't have to mess with the interlacing (higher field first, lower field first).
You could also solve your playback issue by burning the project to BluRay -- which has the same hi-def resolution as the original file.
In my not-so-humble opinion, you're making a lot more work for yourself than you need to by doing so many convoluted workarounds. Using the program with the right settings will save you a lot of trouble, and relieve you of the challenges you seem to be facing now.
Attempting this now... I've created a new one-minute project, setting the preset to AVCHD (to match the recording setting I'd set on the camera). I then used APS8 to extract the video directly from the camera.
I tried rendering the video again using two of the presets - I did not mess with the field order (or any other settings), and the quality seems to be fine. Here are my results:
H.264 1920x1080i 30 - (3.8MBps)
MPEG2 1920x1080i 30 - (2.7MBps)
The good news is that both of the files appear to play just fine on my bluray player (via USB key), and the black border issue seems to be resolved; many thanks. However, the filesizes are still unacceptably high (compared with 2.1GBps for the original).
How do you suggest I render the video? Burning to bluray doesn't seem to be an option, as I do not own a bluray burner, and APS8 does not permit me to burn a bluray image to a hard drive folder. My goal is to simply export the final product to a quality, high-compatibility HD video that does not consume significantly more space than the original.
You already have a BluRay player. I still say your most efficient workflow would be to pick up a BluRay burner and burn to discs.
I can't help you with your "unacceptably large" files. They're as large as they need to be. The only way to reduce their size is to reduce their quality.
I presume that the act of rendering the video with either MPEG2 or H.264 compression compromises the quality - that's to be expected. But I would hope that compromising the quality would also reduce the file size, or at the very least, leave it unchanged.
Instead, I lose quality, and the file size increases from the original copied from the camera. That is what concerns me. I find it difficult to believe that my camera is capable of performing realtime compression that is better than what Adobe Premiere can produce over a long period of rendering time.
Is this really the case?