There seem to be a few questions as to the compatibility of the Flip Ultra HD and iMovie 09. Â The Flip Ultra HD and iMovie work great together! The latest version of iMovie 8.0.3 added the ability to optimize video. I started with 8.0.3, so I’m unsure on what I couldn’t do before .0.3 was released. A couple of quick points:
1) The Flip Ultra HD comes bundled with FlipShare. It seems to work well enough for trimming and emailing videos but when you have iMovie at your fingertips, FlipShare is a bit lacking. FlipShare requires the 3ivx MPEG decoder. This decoder is included in the FlipShare software. If it isn’t installed, FlipShare will ask to install it.
FlipShare can trim video and “create a movie” by linking videos together, adding a title and credits, and a music clip. No great shakes but its free and is easy to use AND it comes on the camera so you can use it anywhere.
2) iMovie 09 (version 8.0.3) is able to import directly from the Ultra HD. iMovie will convert (“optimize option”) the file into the Apple Intermediate Codec format which allows one to edit in either iMovie or in Final Cut Pro. This does make the file much larger (4-6 times) but it ensures that the file is in a format that is easily used by all of Apple’s video editing tools.
3) Quicktime Pro can also edit the Ultra HD video. In fact, as a video editor while not as easy, it is much more powerful than the FlipShare software. It can convert it into just about whatever format your heart desires as well.
Based on a fair amount of discussion, it seems the best thing to do is to follow iMovie’s example and convert the video into the AIC format. The quality won’t get any better but it won’t degrade. If  one were to edit and export the H.264 compressed video from the Flip, the video could degrade through the different applications that would decode and encode it.
A great source of information is this book: “Ins and Outs of iMovie 09”. If you are doing any editing of the Flip video, it is well worth it.
Update:
I did find this very contrarian post as well, that stated AIC was a blight on the universe and run very far and very fast from it. I’m not sure how to take the advice. I did my own tests comparing the H.264 video, AIC and ProRes video and couldn’t see any difference. No gamma shifts, no ghosting, no perceptible differences of any kind. Not sure what I else I can say.