If the file Peter (peem) is trying to use is AVCHD-Lite, then it probably came from a Panasonic digital (still-image) camera. I have a Panasonic Lumix DMC-ZS7, which is a 12-megapixel still-image camera with surprisingly good 720p video capability. I could not get AVCHD-Lite video from the DMC-ZS7 to work with VS2, and I also could not get the editing software supplied by Panasonic to work at all. My solution was to switch the camera to record video as M-JPEG files, which work perfectly with VS2. I have edited many videos from this camera with VS2, once I switched the camera to M-JPEG mode.
I've been meaning to try AVCHD-Lite now that I have VS4 but haven't gotten around to it yet. AVCHD-Lite is much more efficient than M-JPEG in terms of file size, but I use a 32GB SD card in the camera and don't worry about file size.
BTW, if you want a camera that costs less than $300, fits into a shirt pocket, yet can take both good stills and video, the Panasonic Lumix DMC-ZS7 is a great choice. Video I shot with this camera has made its way into professional travel videos, and my most popular YouTube video (31,000 views and counting) was shot with this camera.
Bob Kovacs
http://www.bobkovacs.com