I use Premiere Pro and switched to AVI very quickly after discovering that it didn't handle MPEG input very efficiently. Premiere Elements probably isn't that great with MPEG input either.

If you want to use Premiere Elements (it is a good editor), your best bet is to convert your MPEG files to AVI using the information at the following link:

Adobe Forums - What is MPEGStreamclip?

Zam
my blog: Digital Video and Film