David,
You're absolutely right, it doesn't have to be an mpeg or avi. A Jpeg will work.
For instance you could, using the snapshot tool, make a still of the text on a black background, send it to Photo Shop and create a transparent background, save as a png file, and import that into the PIP, and then create your motion.
But if you rendered it to an mpeg file, you could take advantage of the built motion effects in Titles Room itself (or whatever it's called), like having the text rotate on it's axis. Then when you have that rotating text rendered to mpeg, import it to your main project in the PIP time line, use the chroma key to adjust out the "black"ground, and then use the PIP motion to now have this rotating text "also" move around the screen in a path that you choose.
And yes, you're right, that does seem like a lot of work. And that's exactly what Michelangelo said the first time he looked up at that blank white ceiling of the Sistine Chapel. But once he was done painting it, and he saw that everyone was in awe of it, I'm pretty sure he thought that the results were well worth the effort. You know what I mean?
As far as chroma key (what it is and how it works), there are other's here on the forum that could explain it far more eloquently and accurately than I can. And perhaps they will jump in here. But here's a link to a recently posted SMWOV tutorial that shows the basic theory behind Chroma Key.
http://seemyworldonvideo.com/view/380/green-screen-experiment/
-Cranston-
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