Thanks - I don't think you can go wrong with a good Puffin picture. It's certainly got the aahhh factor!
The camera has been a revelation to me, and I've barely digiscoped since I got it last December. All my blog photos since then have been taken with the FZ20, except I think the Spoonbill which was a seriously long way out - that was digiscoped.
I hope you enjoy your FZ20 as much as I have. It is brilliant for general photography, and so for the first time ever I've really started to take it a bit more seriously (filters, external flash - looking for a wide angle converter next!). I've used it for landscapes, holiday snaps, family portraits - sometimes I even go out for photography rather than birding.
But for bird photography, I think the teleconverter is a must. Hand shooting is no problem, although I have used a tripod from a hide. There's nothing to do with settings - just shoot as you normally would, and don't worry about the teleconverter setting.
You will need decent light, but I don't tend to have a problem unless it gets very gloomy. If light is an issue, choose a decent shutter speed and underexpose the picture a bit - you can always lift it later in Paintshop or similar.
The best thing I think anyone can do with a new camera like this is keep shooting. The FZ20 is not a simple bit of kit - it may have a fixed lens but in many respects it's as flexible but complicated as a DSLR. As I read somewhere recently, a bad photographer who takes lots of photos doesn't stay a bad photographer for long - at least that's what I'm hoping.