Yeah, this isn’t a popular topic with Premiere. ClipWrap (an application, $40 I think) can re-wrap your MTS file, but it can also “join” two MTS file streams into one large piece. Saves time in editing. Before I discovered it, I would just nest a complete timeline sequence of streams.
As far as transcoding for proxy editing, Premiere isn’t exactly great at it either. Again, ClipWrap will output a new editing format (422, HDV, DNx, XDCAM, etc.), or you can rewrap only, then use Media Encoder for whatever you want.
Remember, converting for uncompressed proxy editing (like with NTSC) is basically trading less CPU/GPU decompression stress for more disk space usage…so if you’re coming from an already uncompressed format, converting to an uncompressed proxy probably isn’t the best way to handle it. If you don’t mind the extra CPU usage, you can push your mts streams to h264 and proxy edit with that.
This is basically a plug for ClipWrap. Sorry if you’re a hater, or if this is outdated. Haven’t used it recently.