The two video files you originally had on the dvd were not dv.avi as you say they played alright on a dvd player. They were .vob (mpeg) files and you first tried to import them into Premiere 6.5, can't remember whether or not that version of Premiere could import mpeg files successfully or not, more than likely not. Not all video conversion software does exactly 'what it says on the tin'. Even if it says it can convert from a version of mpeg, the NLE you are importing it into may throw a tantrum.

There seems to be a problem with Premiere, both old and new versions with bringing in mpeg files, as you say you either get just the audio track or very jumpy playback or in your case the app freezes. Whether this is due to the file format or the method you are using to transfer your files (using an EHD - I wouldn't use that system myself - just keep EHD's for storage and backup). What is the total capacity of both your IHD's?, I think Premiere needs a larger scratch disk than 60GB, as this has come up before on the forum and when the forum user increased the scratch disk capacity - the problem they had with Premiere disappeared. Now, I'm not saying that will sort out your problem.

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