I tested it out with serveral games and so forth and it still has the problem. I am pretty sure it's encoded wrong.
There is a workaround though. I recorded the AVI of the game from within mame ui32. Then I opened up the .AVI file with quicktime pro (had to buy that POS). i then exported it out as a .DV file. I opened premiere and imported the .DV file and it worked.
I'm still trying to get it so it's not blurry and not strethed out. It would be nice if MAME ui32 just encoded it so there would be o problem (30fps would be nice too at 720x480)
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Re: bug???
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