This seems to be a very popular problem.
I’ve posted this solution on a couple other threads. But to answer your question.
Editing software works best with avi and mov files.
mpg files are highly compressed files that use GOPs (group of pictures) so that you only have one frame every 1/2 second. The other 14 frames are partial frames that contain only the pixels that have changed from the previous frame. DV footage from a DV tape will end up being 13GB per hour.
I highly recommend using an external hard drive to store ALL of your video footage.
When purchasing an external drive make sure that the rps is at 7200.
The only way to edit your footage is to connect the camera via your firewire cable to your computer and capture the footage.
You will actually get better quality footage from a camera that records onto DV tape.
Don’t bother with HD, unless you know what you’re doing.