Well I’ve found my own solution. I’m a very complicated person and I find workarounds for almost everything.
I’m using Sony Vegas 11, which allows export to Sony’s .MXF format.
I simply converted my clips to that (which went surprisingly fast) then made my cuts and added in my effects.
These clips played back in the timeline without lag even with Magic Bullet Looks on them. The upside was that I could put the clips in a very low quality .MXF format and get very small file sizes.
After I finished the sequence I simply went into the media bin and replaced all of the .MXF clips I was using in the timeline with the original .MTS files. My sequence was done, with all cuts and effects in place, and now the original format clips were in there and being used.
Then I just had to render out. Everything was fast and not one problem.
So it looks like a very powerful system wasn’t the only answer.