White balance, when left in 'auto', is rather warm and dull. It's definitely best to use the manual white-balance option or one of the three presets.
Low-light performance is better than expected and actually quite good. There is some noticeable off-colour noise, but the amount is certainly acceptable for dim shooting conditions. Also, as is typical with most consumer camcorders' autofocus systems, the HD40 tends to hunt in low-light shooting, causing it to bounce in and out of focus. Not surprisingly, the higher-bit-rate MPEG-2 TS presents finer detail and smoother-looking video than AVCHD. But, frankly, as long as you're shooting in good lighting and unless you're really examining the video, you'd be hard pressed to see a significant difference.
Photo quality is okay for a camcorder. It won't replace a dedicated point-and-shoot camera, but it's there if you need it.
Conclusion
For an HD camcorder at this price, the JVC Everio GZ-HD40 has plenty to offer -- especially if you're into manual settings and are not easily intimidated by digging through a convoluted menu system. However, the lack of optical image stabilisation is regrettable in a camcorder of this calibre.
Additional editing by Charles Kloet