Because it only eliminates ONE of the issues in dealing with AVCHD files. The other issues still remain. It's not a good codec to have on the timeline period. No matter how cheap the workarounds for it get.

You wouldn't want a lossy jpg master to work on in Photoshop, you'd want a TIF, or PSD, or the RAW. And it's the same here.

Eliminates TWO for me: stuttery playback and crashes.

What are the other issues btw? Wonkyness in color correcting?

Yea, that's one. But the issue of having long-GOP on the timeline is STILL there come final render. So as soon as you've got your final edits done and switch back to full res for final color and final render, it's just like you never took the H.264 off the timeline in the first place.

Think about it.

Updated Spec!
 

Some good conversation going on here, very insightful!

I have ditched the idea of getting a Dell XPS 8100. I had already made the order and cancelled it...and it sort of felt good. I have now ordered a custom built system with the following spec, and I'm hoping it will give me less (nay, NO) headaches when dealing with HDV and eventually Red Code. I understand to edit from Canon 5D I would be better suited changing codecs.

How are these specs?

Intel i7 930 Processor
ASUS P6T Deluxe V2 - Socket 1366 - Chipset X58 - ATX
6GB 1600mhz DDR3 Tri-Channel Ram (3 x 2GB Corsair)
1TB HDD (and I'll be using many externals for projects)
ATi 1GB 5770 Graphics Card
LG HL20 BDRWDL Optical Drive
2 x DVD Rewriters (don't ask why, lol, were a default with the system)
720W PSU
Windows 7 Professional 64 Bit
Amtec P183 Case
10 x USB
2 x USB 3.0
2 x eSata
1 x IEEE Firewire

Will mainly be running Vegas Pro 9 64 Bit, DVDArch5 (for Blu-ray) and Photoshop CS4 64 Bit

Looks STRONG! :)

My only concerns are with the choice of video card. If you intend to do RED work, buy an NVidia card. Preferably a Quadro card. That ATI is not going to help you down the road.

Thank you Perrone for your feedback,

I'll be looking to add a second graphics card when I venture into Red editing. I'll also look to upgrade the RAM to 12GB DDR3 Tri-Channel. I think the Antec P183 and the Asus MOBO give plenty of room for upgrade

Alrighty then... you're well on your way! (Note that I mention the Nvidia card because all of REDs tools on the PC thus far have required it). Also note that Edius, Adobe CS5, and Avid all support and use the acceleration on the Nvidia cards with CUDA technology. Just in case you want to step away from Vegas at a future date.

I am hoping this system will give me smooth, lag free timeline playback of full resolution HDV (1440 x 1080) with effects, transitions, plugins, multiple tracks thrown into the project and will enable me to encode to m2t and author blu-rays without having to wait for a couple of weeks each time!

And of course the view to edit Redcode and converted 5D video too! :D

My machine isn't as powerful as this, but I can certainly do all that just fine. But your wait with BluRay won't be the rendering as much as it will be the writing. They do take a while...

Previously I have found that the writing hasn't been too lengthy, even with an external Blu-ray in a Sata -> USB enclosure, but my render times were cripppling

Example - 90min m2t HDV Pal timeline = 24 hours @ 25mpbs! But my machine was very incapable.

And not all Quadro cards are good choices. The "good" ones cost at least $900 USD, while even the $500 model is no better than a consumer GeForce GTX 260 model. Forget about the $200-and-under Quadro cards; they are no better than a GeForce 9500GT in this respect.

It's not always what's "better", sometimes it's what's "officially supported".