I simply copied the .MTS source to a folder and transcoded from the file level.
However, after having gone through what you have (AVCHD cam, PowerBook 1.67 + G5 dual 2.3), I have to say it was painfully tedious with problems of audio sync, etc. If there is any way you can get your hands on an intel machine, it is just so much smoother.
I have yet to confidently back up my cam’s HDD using the disk image method, so I feel your pain there too.