Video decoding at reduced resolution with resizing embedded in the decoding loop saves computational resources such as memory, memory bandwidth and CPU cycles. Key to such embedded resizing is proper filtering/scaling of DCT data, and motion compensation at the reduced resolution. Although MPEG-2 video decoding with embedded resizing has been investigated in the past, little work has been reported on solving problems associated with interlaced video undergoing decoding -with embedded resizing. In particular, annoying artifacts may occur in moving areas of interlaced video due to improper scaling or motion compensation. In this paper, we introduce the notion of the Local Interlacing Property for interlaced moving areas and propose algorithms to detect and process data with the Local Interlacing Property properly in the context of decoding with embedded resizing. Specifically, we demonstrate that 1) vertical high frequency in interlaced moving areas should be preserved during downscaling, and 2) phase shift must be added for motion compensation in interlaced moving areas wider certain circumstances. Experimental results show that our method effectively removes artifacts in interlaced moving areas, making MPEG-2 video decoding with embedded resizing a practical tradeoff for interlaced video.