Welcome to the Board ... and I am sorry it has taken this long for anyone to reply.
XVid, as you realise, is a highly compressed mpeg-4 format (using the .avi extension as a carrier), and like its near-cousin, DivX, a little problematic to edit for many people. First, I assume you have the XVid codec on your computer, since Video Studio does not come with it. (It comes with an older DivX codec in the 5 series -- DivX is now in the 7 series. And I am not sure what, if anything, the DivX codec can do with XVid anyway...) I assume that any installation that came with your camera would install the codec, but you would need to confirm this.
But the way you are importing the video is absolutely correct for that type of camera -- or indeed any sort of hard disc camera. "Capture" really only means 'import' and as long as you can get the video onto your computer, that is all that matters.
Your computer is also up to the job ... virtually any job!!
It requires no special tweaking. I have an older Quad 6600 and I have never done anything special to it, and it runs VS/X2 just fine -- including my only very occasional DivX editing (I don't use XVid).
The one crucial piece of information you do not provide is what exactly you are wanting to do with the edited video. Are you going to burn it to a video DVD? In that case, it will need to be converted at some stage to DVD-compatible mpeg-2 from its current format. If you are experiencing difficulties now, it could be better to use a freeware program like SUPER (you need to Google for it) to convert the XVid to mpeg-2 before trying any editing. Or you could convert it in X2 to mpeg-2 before editing it any further. (Share > Create Video File > DVD.)
Here, though, there could be a bit of a problem since you say the frame format size is 720 x 480, which is of course NTSC size, rather than the PAL we use here in Australia. I am thus guessing that the speed of the video will be shown as 29.97 fps (or possibly 30 fps) which is also NTSC. So you will need to decide from the start whether you will continue with the NTSC format, including in any DVD you might produce; or convert it to PAL.
If you decide to do the latter, I have to say that you are in for a disappointment as such a conversion is not particularly good for video in general terms. X2 can do it, but doesn't do it particularly well. The programs that *can* do it pretty well, like Canopus ProCoder, are very expensive.
(Converting from NTSC to PAL requires the program to drop 4.97 frames per second to PAL's 25 fps speed, which will make it a bit jerky. It also has to expand the frame size from 480 to PAL's 576. To do this, it has to invent pixels, in other words, and does so by simply duplicating some. This means it will be a bit fuzzy. So overall, the conversion will be jerky and fuzzy. Not a good look!
)
If you leave it in NTSC format, the good news is that just about every DVD player in Australia will have no difficulty playing NTSC DVDs.
But throughout the project, you would need to ensure that the properties of the original video are maintained throughout. First, in producing a DVD-compatible mpeg-2, you would need to choose Share > Create Video File > Custom. Then in the dialogue box that appears, give the new file a name and press the Options button, then choose the Compression tab. Up the top, change the PAL DVD to NTSC DVD. Then in the preceding General tab you should see that it shows 720 x 480. You could probably change the Field Order to Frame Based (since you are working with XVid which I am pretty sure is frame based). Otherwise, leave the properties pretty much alone. Then press OK to get out of that box, and Save to get back to the main program. The conversion will then take place.
Later, when you go into the burning module, (Share > Create Disc > DVD) click on the preferences icon in the bottom left of the burning screen. Change the 'TV System' button from PAL/SECAM to NTSC. Then insert your new mpeg-2, build a menu and burn.
Or are you intending to burn your XVid to a DVD as a DivX DVD (which will only be playable on players rated to play DivX -- it's always marked on the case)? You don't burn them as a video DVD -- just finish the editing without converting, and burn as an archive file to a DVD as an archive DVD, not a video DVD. The rated player detects the medium and will play it. Works fine (and wonderfully now that DivX has really improved its high definition output...) I also don't know if you have to convert XVid with a DivX codec for this -- but if so, you can use the DivX 5 series codec which comes with VS since that is the version that most stand-alone DVD players rated to play DivX discs can 'see'.
Or do you intend to do something else with it?
I am also not sure what you mean by the difficulty you are having with the audio editing. The rubber bands, I admit, though, take some getting used to -- particularly watching for the little point to change to a finger etc... But it normally works fine with a bit of practice. But if you are experiencing a specific problem, please describe it, and someone may be able to help.
If you are not doing any fancy cross fades with the audio, but just simple fade ins and outs, and want to adjust the volume level apart from that throughout the audio clip, you can do it without the rubber bands by simply setting a fade in and out time in File > Preferences and then, in timeline Edit view, click on the fade in and out icons to the right of the time and volume box (a little above centre of screen to the right of the bottom third of the preview screen). You can then change the numerical value of the volume level in the volume box from the default 100 upwards or downwards. As I said, that affects the entire audio clip. Otherwise, you are stuck with the rubber bands if you want to vary the volume during the audio clip.
You also don't tell us exactly what your specific problem is apart from 'performance issues', but I am assuming that you mean the project playback is rather jerky. I am afraid that too is relatively common with highly compressed formats like this -- though I am bit surprised it is happening on your Quad. But playback can also be affected by the codec being used, as I suggested at the very start, and other factors. You are asking the computer to throw together difficult compressed video, together with a pile of audio and titles and expecting it to play smoothly on the fly... It doesn't always happen.
In your separate email to me you said:
Finally when navigating around the storyline I note the computer slows significantly when the "timeline" is compressed to a period of a couple of minutes vs 30 seconds (for example). Would you expect this to occur?
I am afraid I don't understand what you mean by this. Could you give further detail please?
In your email, you also mentioned SmartProxy. In the main, especially on a computer like yours, you would not need to use SmartProxy. It was designed primarily for High Definition video, and particularly AVCHD, which is notoriously difficult to edit, even on Quads! I would not have thought it necessary to use it for XVid/DivX -- though confess I have never tried it.
Then again, since they are both mpeg-4, like AVCHD, it could be that it works. The idea with Smart Proxy is that it makes an mpeg-2 copy of the mpeg-4 file. You do your edits, playbacks etc with the proxy file, and when you are satisfied, apply the edits to the real file. With AVCHD, it should be noted that creating the proxies takes ages (hours, depending on the project), and also takes a long time to apply the edits to the real files.