Still cameras use a codec called MJPEG, which Premiere Elements generally doesn't work with.
Although some people have had some success forcing the program to work with this codec, Windows MovieMaker is a much better choice for editing this type of video.
Read Bill Hunt on a file type as WRAPPER http://forums.adobe.com/thread/440037
What is a CODEC... a Primer http://forums.adobe.com/thread/546811
What CODEC is INSIDE that file? http://forums.adobe.com/thread/440037
Report back with the codec details of your file, use the programs below... a screen shot works well to SHOW people what you are doing
If you have a red line over the timeline after importing a video and before adding any effects... your project is wrong for your video... read above about codecs
Once you know exactly what it is you are editing, report back with that information... and your project setting, and if there is a red line above the video in the timeline, which indicates a mismatch between video and project
H.264 will NOT work inside an AVI wrapper http://forums.adobe.com/thread/854115
Once you find out what is inside your AVI wrapper, you will know what you need to edit
DO NOT DOWNLOAD AND INSTALL A CODEC PACK WITHOUT CHECKING IN THIS FORUM !!!
If your camera does use MJPEG, read...
Edit with Morgan or MainConcept http://www.morgan-multimedia.com/