Camera shake produces ripple-like effect I'm using a Kodak Zi8 at the moment, but I've noticed this effect on other cameras. When a camera is moving it occasionally produces fun house mirror-style effects. It makes things appear to stretch and shrink. Is this a software issue or a problem with cheap components? Are there any cameras that don't produce this effect?

See example video:
 Kodak Zi8 shake issue from Reed Law on Vimeo.
This "effect" is called Rolling Shutter. It is common in most CMOS camera sensors because they don't capture an instantaneous image, instead they do it progressively over a period of time. CCD sensors do not have this problem as they do have instantaneous capture.