Because I have AVCHD 1920x1080 MTS files in native progressive format, all my projects are in HD and my output in Produce is Blu Ray, either AVC 264 or MPEG 2 ( BD 1920x1080 ). Yes, these are PRESETS in which editing the format is not allowed such as custom menu.
So my workaround is to Produce in the custom format, go into the video box, and click the drop down option for progressive setting. This appears to fix the problem.
I hope I did not lose anyone in trying to explain this. Bottom line, if you have the same format like I do on your project, choosing the given preset may render an undesirable result. You may want to custom your output settings. Cyberlink sure default the setting for Blu Ray to Progressive video. I am not sure if this a bug or by design.