This did not solve the problem on my 17″ Macbook Pro. These were the settings I always used. The video playback is still choppy.
I have, however, solved the problem, and it only cost me $3000 to do it! An 8-core 2.8ghz Mac Pro with 10GB RAM and a 2TB striped software RAID setup will edit AVCHD in Premiere Pro CS4 without a hiccup.
After researching the problem for more than two months, I have come to conclusion that it is strictly related to system performance. My new Mac Pro works with the footage effortlessly, my Macbook Pro struggles with it.
Hopefully, Adobe and others will find ways to better handle the AVCHD files with future releases.