"THE FUNNIEST thing happened on my way to the coffee shop," announced Terry Gilliam, settling into a booth for a quick bite of breakfast and a chat about his new movie, "T "Time Bandits," a marvelous adventure spectacle. "I was coming down in the lift," he explained, "when the doors opened, and there were these . . . guys. Neatly dressed, Middle Eastern types, with little plastic wires attached to their ears. Their intercoms, I suppose. Anyway, one of them gave me a look and said, 'Take your hands out of your pockets!' It took me by surprise, of course, so I think I must have responded with a stupefied grin. Anyway, I didn't act quickly enough for him, so he insisted, 'Hands out of pockets! I must see your hands!' I hauled them out and held them up, perfectly empty. That seemed to be the right thing to do. After a friendly pat here and there, he relaxed a bit. I certainly posed no threat to whomever he was looking out for. Somebody mentioned something about a Jordanian bunch taking over a floor or two. I must have made an unscheduled stop. By the time we reached the lobby, he and his pal were looking a little sheepish too. I wish I'd had the presence of mind to say something funny. For all I know, they might have been Monty Python fans."

Gilliam doesn't look especially dangerous or suspicious. A native American -- born in Minneapolis 41 years ago next Sunday and raised there and in Los Angeles -- of average height and build, he has acquired a slight British accent after residing in London for the past 15 years or so. His pug face is puckish rather than menacing. Perhaps his haircut, a shaggy pageboy that seems to date from about 15 years ago, was the feature bound to arouse suspicion in fellows paid to be suspicious, at least when coupled with hands hidden in the pockets of faded jeans.

A few days later, right before the film's scheduled national releaseat several hundred theaters, Gilliam was trying to dispel misconceptions about "Time Bandits." He was particularly vexed by the television trailers that were, he was convinced, distorting the product beyond recognition for a vast potential public, and particularly eager to remind everyone that "Time Bandits" was not -- repeat "Not!" -- a Monty Python comedy.

"The Python albatross is still around our necks," he complained. "I think the movie is strong enough to overcome all the wrong ideas people are likely to take to it, but I'd like to minimize them. Maybe it's not a smart approach. I've been going around the country trying to correct misconceptions about the movie before the movie's opened. It could boomerang. Half the time I'm afraid I may be spreading another sort of misconception by sounding so defensive. You know how it is: People may suspect that there has to be something wrong with the thing if the director insists on saying, 'Believe me, it's really good, but please don't expect it to be another Python thing or this jokey thing about history, like Mel Brooks did last summer only smuttier,' which is the impression left by the worst of the trailers.

"At the very least I want to suppress that one. There's no point in going into gory detail, but there was just a terrible sniggery distortion of a perfectly inoffensive scene. It was bound to appeal to the audience you don't want, put off the one you do want and mislead both of them.

"I suppose it's a useful reminder of how easily your intentions can be misunderstood -- or how little some people value what you're doing in the first place. I could see from the previews that the movie took a while to be accepted for what it was. Not as a new Python farce but as adventure and spectacle, something fantastic that grows out of the way a kid's imagination works, the way fantasies can carry you away. All the jokes are incidental. Everything seems fine after the real nature of the film becomes clear to the audience, but it definitely has to get over that hump.

"The Python thing has created some kind of automatic response that drives me crazy. I hate it. There are some people out there who seem conditioned to laugh at anything with a Python association. I noticed it for the first time when we went on tour with the show. I'm sure we could have put any guys up there or programmed robots to do the sketches, and it wouldn't have made the slightest difference to some of those people. It's as if they were programmed to laugh at Python jokes. It still baffles me. I had been thinking all along that what we did was impulsive and spontaneous and unpredictable and uneven, when you get right down to it. What a disillusionment! Without knowing it we also attracted a creepy kind of following, all the indiscriminate Python junkies who laugh on cue at whatever you do. Hell, they'll even laugh before you do it.

"I just want the movie to have a good shot at popularity strictly on its merits. The release here was set up awfully fast. Avco-Embassy didn't buy the rights until three weeks ago. What we're assuming is that it's going to pay off big for them, because there's nothing of consequence opening before Christmas. All of November looks soft and ripe for the taking. The risk is that we're opening so fast that the promotion could be ineffective. There's really no time for a clever buildup of audience anticipation. That's another reason why I'm becoming fanatic about any form of misinformation. We're in a sink-or-swim situation."

Gilliam takes particular pride in having completed a lavishly visualized movie on a relatively modest budget: $5 million. If made within the Hollywood system, "Time Bandits" would surely have cost at least six times as much, a consideration that would have prevented it from being made in the first place. Gilliam confirmed that a few of the American distributors, including the Disney organization, had made friendly overtures, but the prodigal insists that he's content to remain working out of his adopted home in London.

"One of the reasons I got out of New York back in the '60s," Gilliam said, "is that I couldn't stand the tone that dominated the movie business. It was always money first and movie content a distant second. The priorities haven't changed. If anything, the emphasis on commercial calculations at the expense of everything else, including common sense, is even more lopsided.

"You get it in London too, but it's so much smaller that you don't feel intimidated. I know my way around there, and I've got a successful track record to bargain with. Dennis O'Brien and George Harrison put up the money for 'Time Bandits.' I didn't have to deal with any other backers or producers. I could go to Dennis and get a go-ahead on the basis of seven pages -- a preliminary outline of the movie at best. Whenever I think of George, I say, 'Thank God I bought all those record albums years ago!' There's no interference. The producers may want to criticize my work, but they don't try to control it. George could say, 'I didn't like that bit,' but it's just his opinion. My typical response would be, 'Well, I didn't like all the cuts in your last album either, George.' The point is, it's still my movie.

"Obviously, you don't want to jeopardize a working environment that works to your advantage. The British film industry may have withered away, but it's still possible to make technically accomplished popular movies in Britain for a fraction of the costs you face in Hollywood. I'm in a position to make a very comfortable living doing the kind of movies I want to do. What could be more desirable?

"You don't have to hang around the business too long to discover that very few people know what they're talking about. The fixation on deals and outrageous profits accounts for a lot of distorted perceptions and dumb decisions. Here's a small example. At one point during the casting of 'Time Bandits,' we were thinking about Gilda Radner, among other people, in the bits that Shelley Duvall eventually played. I think it might have been fun to work with her, but I was put off by an agent who told me, 'She's worth 10 million at the box-office, easy.' Now this was before 'First Family' and before the film of her Broadway show, but while I wish nothing but the best for Gilda, this statement was obvious bulls--- at the time. Ten million! That's how they think. No one believes it, but the mentality itself gets in the way. It sours negotiations and prevents you from working with people you might want to work with.

"At the other extreme, I had a difficult time making a case for Katherine Helmond. I wanted her from the start as the ogre's wife, and I knew she had a big following in England on the strength of 'Soap,' which has been very popular there. The producers wouldn't go for her. They wanted Ruth Gordon, a choice I really couldn't argue with, and she was all set. Then she was injured working on one of the Clint Eastwood pictures, so we had to cast someone else. I went round and round again before the producers finally relented a let me hire Katherine. Just as I suspected, when she got to London, no one in the cast attracted more public attention or got us more press coverage. It's amazing how much obvious stuff nobody knows."