The flicker is caused by a combination of thin horizontal lines and interlacing. Since PAL video displays 50 interlaced fields per second there is the possibility that a horizontal line can be so thin that it is only one field thick. At 2 alternating fields per second, the line will display in one field and not the other thus flickering on and off 25 times a second.
As you have seen, rendering progressive removes the interlacing and thus gets rid of the problem. It does this at the risk of reduced resolution but the flickering is gone. You didn’t need Lagarith for this, you just needed to render progressive. Alternately you could set the Reduce Interlace Flicker property on the image events in Vegas. If that doesn’t remove it totally you could also add a 0.002 Gaussian Blur to the events to make the thin lines not a sharp.
The 5.1 Surround template is under Dolby Digital AC-3 as the “save as type”. Your project must be configured for 5.1 Surround Sound for it to be displayed. Perhaps the Movie Studio version doesn’t have the AC-3 encoder.
~jr
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