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You would get the best quality by editing the mpeg2 directly, so that it doesn't have to be re-compressed when you're done.
It's hard to find good mpeg2 editors, though. Womble mpeg2-vcr is okay sometimes, but sometimes it's a pain in the ass and can generate non-standard mpegs that no longer play properly in other programs or dvd players. Haven't tried to many others. So you may have to convert the video again to something like a dv avi file, (tmpgenc can do that for you, too), and then you could edit it in pretty much anything you want to. Premiere's kind of a piece of junk, Virtualdub is nice if you're looking for free software.