Compression problem
 

I've got Adobe Premiere Elements and whenever I watch my video in the preview window, or export my video, there are these scan lines all over the video that are not originally there when I watch it straight from the camera. When I import the movie the only way to watch the video without those lines is by using VLC player and changing the deinterlace to "blend". Is there a way to fix the video like that within Premiere? Here is an example of the effect on one of my youtube videos.

http://youtube.com/watch?v=hme3mNiv388

It makes the video look out of focus too, but I'm sure thats just the compression that youtube uses. Can anyone help?

To me they look typical of interlaced footage and should not show up when you see it in the TV. I think you should deinterlace the footage in NLE if you want to watch the end result only in computer.
However if you want to port it tape/DVD to watch in TV then you dont need to deinterlace as these artifacts wont showup in TV.

Any idea how to deinterlace a video in Adobe Premiere Elements? It should be the same as in Premiere Pro. If not, is there any third party software (free possibly) that I could use for that?

I never used AP so cannot tell. Hope someone who knows would chime in later.
However there are free sources! I think avisynth (a free video editor) has a smartinterlace plugin that can do it for you.
You might also try VirtualDub to deinterlace. (download the plugin from neuron2.net)
However VirtualDub cannot open the native m2t files from hv20 directly. So you have to convert them to avi first.

Edit: If you need a workflow that I am using at the moment let me know.