I tested 300 on Blu-Ray again, with ME set to High and CM on Auto1. I can definetely see what the other guys are talking about, and creepy is the right word. It is really weird. The good news is that I think I know why it is doing it.
I just got off the phone with a level 2 Sony Tech Rep. I got some answers from him, but who knows exactly how accurate they are. He seemed to know his stuff, and he actually knew exactly what I was talking about as he had seen it himself. Here is a summary:
1) A3000 is fixed at 120 Hz. He seemed fairly certain of this.
2) MN is indeed doing black frame insertion as we suspected.
3) From what he could tell me (he didnt know exactly how it worked), ME is some type of frame blending/interpolation algorithm.
4) The "Auto" settings for CM aren't Auto at all. CM evidently has no detection algorithm to tell when it should apply a reverse 3:2 pulldown and when it should not (which is news to me). Evidently, if CM is on it tries to do a reverse 3:2 pulldown on everything, even 1080/24p. You have to decide when to use it and when not to. Auto1 is different from Auto2 in that Auto2 disables ME.
The rep had seen the issue we are describing when having ME turned on with CM to Auto1. He went on to explain that CM and ME interact, and this is by design. The reason we are seeing this weird, creepy, silky smooth picture is because we shouldn't have CM on for 24p playback in the first place. The interaction between ME and CM (which is by design for material that actually needs CM) is what is giving us the creepy picture. This explains why one or the other doesn't necessarily make that big of a difference.
So, long story short, using CM and ME together for 24p playback seems to be incorrect. He verified that some people actually liked the effect, but it seems very "artificial" looking to me.
So, to sum it all up, you are responsible as the user to know when material requires a reverse 3:2 pulldown and tell the A3000 to apply it.
This doesn't leave much material that actually requires CM. A good DVD player or BD/HD DVD player should already apply the reverse 3:2 pulldown before the signal leaves the player. Most of the better ones (such as Oppo) DO have detection algorithms to determine if a reverse 3:2 and they apply it automagically. If you have an older DVD player that does not have reverse 3:2 capability, then you can turn on CM and allow the A3000 to do it.
The other question that remains is cable/sat/OTA material that requires a reverse 3:2 pulldown. I don't know if devices such as my DTV HR20 apply a pulldown or not, so this one is probably dependent on what device (if any) you have supplying the signal. We do know that CM will attempt a pulldown on HD signals as well as SD. This is evident from the Blu-Ray problems as well as the problem CM causes with the ticker on ESPN HD. You will have to make the call as to when you should turn it on or off. I would suspect that there are times when you need a reverse 3:2 pulldown for HD material as a 3:2 pulldown can be applied no matter the resolution.
A side note on DRC for those who care. DRC is the video equivalent of CM. What I mean by this, is that CM seems to handle film pulldown and deinterlacing, while DRC strictly handles video mode, 480i deinterlacing. The only thing DRC affects is 480i, while CM will affect any resolution. If anyone is interested in the DRC Modes and their differences, I will be happy to explain my understanding. Keep in mind that there are also other algorithms, such as upsampling 720p to 1080p and deinterlacing 1080i to 1080p that we evidently have no control over.
I hope this helps put some closure to the issue, I know we have all been racking our brains