project for projection

So I am working on a project that will be projected on a big screen.
the screen will be wide so I have to shoot and edit in HD, but, I am not sure what the best workflow is? (never worked on an HDV workflow)
I was thinking about shooting with the Sony HDR-FX1 with Sony HVR-M25U Deck and just get a cheap HD ready TV to view the program.
I know that the I-Frame codec is better, but/.
would FCP convert the footage to that codec when capturing?
Should I up-convert footage that has already been shot to HDV or is it ok to leave it like this?

by the way.

FCP5.1.1
OSX10.4.7
Quad G5 2.5 GHz - 4.5 ram