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You may need to do this in two steps.
1) In a separate project, crop your video as needed and output it using Share/Computer/AVI with the DV preset.
2) Import that cropped video into your main project and do your PiP with this new clip.
I tried to make the crop its own project then add it to the final but the black top and bottom is maintained. As if you crop something in PS and dont save with a transparent backround.
However, I saved my original project (the crop PiP issue) as an AVI with the DV preset and found that my cropped PiP is the way I wanted, but only when choosing DV widescreen, then I can convert it to MP4 with another program. It also works with the Mpeg - NTS DVD Widescreen.
So, I believe the issue lies with making sure the output file is widescreen to maintain my desired crop area.
Thanks for the response, Steve!
Oops. My bad.
You should not have cropped the original video. You should have resized it.
You can do this most simply by clicking on the video image on the Monitor panel (a frame will appear around it) and then dragging on the corner handles to size and position the video within the frame as you'd like it to appear.
Then, when you do your output, it should work perfectly.
Naturally, you don't want to resize too much. If you try to stretch your photo size too much, it will look pixelated and fuzzy. But stretching it just a bit should be fine. Especially if you're going to use it as a PiP later.
The issue you are talking about occurs when you export your project using a output preset whose resolution is different from your project.
When you create a Widescreen project and output it using a standard preset, what happens is that PrE fits your widescreen project to a standard frame by adding black top and bottom bars(letter boxing)
When this is done for your both videos(of PiP), there is a chance one of them shifts with respect to another.
So please make sure, that your project setting matches your media and your output preset settings.