I shot a figureskating competition last week with a HDR CX550 making DVD and AVCHD Discs as well as stills for the participants. The video was pretty nice and made some great Discs.
I 've wanted to produce reasonable stills at these events to inflate the ROI a bit. Shooting fast moving skaters and trying to keep them nicely framed (thankful for af at least) is busy work and figuring out when to pull the trigger for a still is a distraction and besides it takes forever and a day for the file to be written whilst recording video so I decided to shoot the video at 1/250 to minimize blurr and extract frames rather than shoot stills.
Worked not too badly. PMB does a nice job of scrolling through the m2ts and saving frames; fixes the de and interlace issue too, then photoshop isopro and icorrect for fixiing up the noise and color.
The prints are not tooooo bad at 6x4 but I'm wondering what the VG10 still frame extracts would look like? Way way better than the cx550?

I doubt that extracting a 1920x1080 video frame from the VG would look hugely different, or "better" than a 1920x1080 video frame from the CX550. The VG might have a bit of an edge since it is a progressive frame rather than interlaced.
I do think a proper still image shot from the VG, with it's big chip being fully utilized, should be a better quality image than a still shot with the CX550 1/3" chip. It should be like comparing a DSLR still to a pocket sized point & shoot still.

I bought an intensity shuttle to use for capturing from the cx550 (haven't quite set up yet )
Wondering what the video directly from the hdmi output on the vg10 would look like as mjpeg

The VG might have a bit of an edge since it is a progressive frame rather than interlaced.

When there is lots of fast motion deinterlacing is going to remove half the lines, so the difference will be huge. On the other hand, the necessary slow shutter will force a huge amount of motion blur.

The Pana 700 that does 1080p60 would be the best choice for this kind of work.