When my character move (x and y axis) the character stutters for a bit. I’m directly setting the velocity of the “rigidbody2D” (not using e.g. AddForce()). Is this normal? Or is there something wrong with this technique.
BTW the FPS for my game is currently around 80 fps.
Initially there is nothing technically incorrect about setting the velocity directly, as opposed to adding forces. Obviously by setting the velocity you will have instant acceleration, and when adding force a more naturally accelerated movement. I’ve used your approach on several occasions and never did I experience any stuttering. My first guess is that this is related to something else.
Are there any other things that you might be doing which may cause it?
It might be the case of screen tearing caused due to vertical sync. Since your game runs at a frame rate of 80 which is greater than your refresh rate (60, I guess) it might be causing this screen tearing resulting in choppiness for your character.
One solution is to cap your FPS to 60 or equal to the refresh rate of your monitor (usually people have it set to 60, so 60 is safe bet).
I have the same stuttering in the latest Unity 5 version. I’m using interpolation and only moving objects by changing the rigidbody2d velocity.