You are correct that if you increase the shutter speed, the video image can look choppy; this is because the camcorder takes a faster look at each image and therefore there is less motion blur recorded. As such, when the images are played back as a continuous video, instead of blurring correctly into each other (which is what our eyes expect to see) they are perceived more as individual images, leading to the flickering effect.
So whilst a quick shutter can be useful in stills photography to ensure a crisp image, it is less helpful on a camcorder. Also, the faster the shutter, the less light reaches the sensor which can make the image quality worse when lighting is poor.
For these reasons, I always recommend shooting at the standard 1/50th shutter (in PAL countries; 1/60th in NTSC areas) for all video, unless you are specifically trying to achieve a certain look or use the shutter for an effect.
As for image effects, the defaults are fine but you might like to watch our video about it (the video uses the Canon XA20 but the adjustments are the same) – it’s at www.youtube.com/watch?v=rfwWdSZa6tw