Ok, I place an .MTS clip in a project and create a proxy. Drag to timeline and just render the clip to an mp4 variety. When I play the rendered clip, the first seven frames are light grey, during the next three frames, the grey dissolves in blocks over the top of the video clip which then plays correctly.
I'm sure I've seen this happen before but I can't remember when.
Oh, and if you understand any of that you're someone to be admired.