A method of processing a digital video sequence is provided that includes estimating compensated motion parameters and compensated distortion parameters (compensated M/D parameters) of a compensated motion/distortion (M/D) affine transformation for a block of pixels in the digital video sequence, and applying the compensated M/D affine transformation to the block of pixels using the estimated compensated M/D parameters to generate an output block of pixels, wherein translational and rotational jitter in the block of pixels is stabilized in the output block of pixels and distortion due to skew, horizontal scaling, vertical scaling, and wobble in the block of pixels is reduced in the output block of pixels.