I'm using a Vegas 9.0e and always lags when I do a FullHD video editing (video acquired from my Sony HDR XR-500V) I suspect my PC system requirement is not enough to process such FullHD video.
I'm using a PC with this set-up:

Windows 7 ultimate
Processor: Intel® Core™2 Duo Processor E6600 (4M Cache, 2.40 GHz, 1066 MHz
4gb of RAM
NVidia 9500 GT videoCard
80gb and 1TB SATA harddrive.

Can someone help me suggest what to do to solve this problem? Thanks

I always render all clips to Cineform ($99) or PicVideo ($40) intermediates - so much easier to decode because they are intra-frame codecs and do not need data from adjacent frames to be decoded - unlike the files from most modern cams.

Your processor is not powerful enought to handle HD footage efficiently.

As Larry suggested, you can buy a program (Cineform) to convert the program to make it easier to work with. But then it will take forever to convert the files, because of your processor.

Or you can purchase a more powerful processor which can enable you to work directly with the HD footage.

Or you can do both...get a program and buy a more powerful computer.

I have used Cineform and didn't like it. I prefer to have the most powerful processor I can afford and just leave it at that.