Start by downrezzing your photos in PS to a more manageable size. If you don't need pan and scan, just use 1280x720. You can batch resize them in PS and it will make the editing experience a lot better, putting less overhead on the system and resulting in a much snappier response.
Read about handles in the Help file for transitions. You need extra material at the end on a clip and the beginning of the next clip.
1. If you plan to do any kind of movement on the photos, that will have to be done one by one anyway, so you're better off changing the scale when you do the movement, instead of any kind of automatic scaling.
2. You need handles on the video. Check the Help file for info.
WOW!! Thanks for the prompt reply, much appreciated!! I remember reading about handles for transitions, that explains that, thanks. Thanks for the info on photos, appreciated!