Unfortunately, the small sensor does take its toll on image quality. This isn't so obvious in good lighting, where the lack of resolution doesn't show itself unless you look closely. The image is less sharp than the competition, such as Canon's LEGRIA HF20 and a little darker. But this softness hides grain, so most consumers will be satisfied.
It's a different story in low light. Here the softness and darkness of the image are accentuated, making video look muddy and lacking in colour. We noticed the same problem with the HDC-HS20, which has an identical sensor and optics. The built-in LED video light can improve things a little at short range, and iA will switch to Low Light mode automatically, but neither can save the image quality from mediocrity.
We weren't tremendously impressed with the HDC-SD20's sister product, the HDC-HS20. When we reviewed this product in February, the HDC-SD9 was still readily available for under £400, offering better image quality for a lot less money. Now it's much harder to find. If you can track it down for less than the HDC-SD20, we still recommend that you opt for the older model. But camcorder prices have risen due to the weakness of the pound, and in the current context the SD20 looks better value, even if it isn't as good a budget HD camcorder as its direct predecessor.