If you plan on using a TV for output it can handle the interlacing just fine. The thing with Xvid and most other codecs is that when you encode interlaced material it makes the over all file size much larger than if they were deinterlaced. There for for best compression and size deinterlace is needed. The new code should make improvements on compressing interlaced material without deinterlacing. I will still be deinterlacing myself for a while though. 80% of the time I watch my encodes on the PC an not on the TV.
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