The Panasonic HDC-SD1 is a camcorder that can capture outstanding footage, but you can't edit the video just yet.

We were originally skeptical about a camcorder that records high-definition video onto an SD Card. What kind of compression is going on behind the scenes to make it fit? However, our doubts soon faded, as the HDC-SD1 captures and stores video of exceptional quality. Unfortunately, for the moment, the compression format it uses introduces a different problem: an inability to edit your video.

At its best quality setting, the HDC-SD1 records 40 minutes of 1080i video to an included 4GB SD Card. This camcorder uses the AVCHD format developed by Panasonic and Sony. When we tested the HDC-SD1, no video editing software supported the format, but Sony says it will offer a free update in the near future to allow its Vegas video editor to import such files. Users of the HDC-SD1 also need a very powerful computer to edit the video once the applications to do so are available, as well as an HD-DVD or Blu-Ray drive if they want to export it from a computer in HD. Forget about using the software included with the camcorder. Athough users can use it to export standard-definition video to a DVD, it's nearly useless beyond that. You are unable to use it to watch your footage in full-screen on a computer.

Since the camcorder has component outputs and an HDMI port, however, you can play back the unedited footage in high-definition on an HDTV. Video we captured in well-lit settings looked gorgeous, and even video taken in relatively dim, indoor rooms looked surprisingly good. Importantly, it was much better than footage from the standard-definition camcorders we've reviewed. The HDC-SD1's microphone captures 5.1-channel audio, too. We weren't able to test it with a surround-sound system, but it sounded quite good through standard television speakers.

Panasonic says the HDC-SD1 is the smallest HD camcorder yet, and it's certainly far more compact than many standard-definition models, despite its larger-than-average, 3in LCD. The tube-shaped body measures roughly 2.5in in diameter and 5.5in long, so it's very comfortable to hold. The HDC-SD1 has some manual controls, though they could be easier to use. To adjust the shutter speed, for example, users must press a tiny joystick on the back once for each step in speed (you can't just hold it down).

Overall, while the current editing limitations are significant, once the software catches up, the Panasonic HDC-SD1 will be an excellent camcorder.