John, as far as I know editing native HDV is not available in Premiere Pro 1.5.1 (it is however in Premiere 2.0). The older version has a built-in Cineform plugin so indeed you're capturing cineform avi.

Native HDV capture in the Windows world is almost invariably to a .m2t file, not .avi. I'm no PPro guru but looking at that screenshot then yes, you are capturing using on the fly conversion to the Cineform AVI codec.
Is this really a problem? No. The CF codecs are excellent and have way less generational loss that using HDV.

Nothing in your screen captures of the image indicates the footage is interlaced by the way.

I vaguely remeber the Cineform codecs were included in the older versions of PP. Also, even after the Cineform trial expires, there is an option to keep them for compatibility - however, the on-the-fly conversion to avi shouldn't work!

Really? What would you attribute the lines to on the edges then? To me it looks exactly like interlaced lines. Though I could very easily be wrong I suppose. That said, when I told PPro to output with no field order, those lines went away.

Obviously the fields are flipped.