lack of available light.

Typically when using flash your camera will lock onto a shutter speed... as automaticly adjusts flash output to expose the picture correctly. So, you really shouldn't see motion blur when using flash. I could be wrong.

I think one of the primary reasons you are getting better results by diffusing your flash by taping something over it is because diffusing flash is a great way to soften the lighting. There are multiple ways to achieve this. I have a fairly good DSLR system with an external flash that I point towards the ceiling to bounce the light back down, which creates a really nice soft light. Sometimes people use soft boxes with lights on either side (or they take the box outside, I do this often at the jewelry store I work for).

A few recent shots.

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