Firstly playing off your internal is a no no but you already know that.
Did you at least render the shots because overlayed jpegs on HDV will likely need render. Secondly do your sequence settings match the clip settings exactly?
HDV 720p is HD but changing that to AIC is not advisable. If you want to transcode to a codec that is easier on the processor, then ProRes is best, but not running off your internal. An external FW800 is minimum requirement. I have no trouble running HDV 1080 50i with ProRes renders off an external FW800 on a 41/2 year old G5.