You very much should use the Flip HD preset.
Flip camcorder use a proprietary codec (compression system) and you must use the correct preset to get any decent results.
Unfortunately, Flip doesn't publish specs on its site, so you may need to experiment a bit to find the right preset.
If you've selected the right preset, your video will load onto the timeline with no red lines above it until you add a transition or effect to the clip.
When you find it, please report back here so we'll know what to recommend next time.
The AVCHD LITE 720p30 setting seemed to be the better setting. When I burned a DVD the output was an anamagraphic (filled the screen) view when played back. The FLIP setting produced a smaller viewable picture. There were black borders on each side. My eye could not pick up a difference in picture qualtiy. Since I prefer the larger view, I'll use the first setting.
As I have created a video with a non preferred preset (FLIP), is it possible to create a new project with AVCHD LITEp30 setting and paste in all the video treatments from a another project with a different preset. Then I can resave to the AVCHD Litep30 setting. I was not able to make this happen, but maybe there is a trick to do this.
The only way to do it is with a program called ClipMate, available online.