Generally the main reason someone would transcode footage to DNxHD when editing is because their system was having trouble processing the native footage. So my general rule is that unless your system is having issues dealing with the native content then you shouldn't transcode the footage for editing purposes when editing within Premiere Pro. Another possible reason someone might want to transcode to DNxHD is because if you use DNxHD 220 it's 10-bit (4:2:2) color space which in some editing applications can allow more lattitude for color correction. However with Premiere Pro your footage gets converted on the fly to 32-bit floating point when color correcting anyways so this isn't a valid reason to transcode when you're planning to edit using Premiere Pro.
The reason DNxHD is easier on your CPU though is because it's not heavily compressed. When dealing with heavily compressed footage such as AVCHD for example (Or any other compressed media) your CPU has to strain to decompress the footage when you're editing/playing back the media.
I do have a question though did you actually check to see how much memory was being used? The reason I'm wondering this is because I have gotten this error when dealing with other programs before and when I actually checked I wasn't anywhere close to using up all my RAM.
The other question I have is do you have your page file disabled, or has your page file reached its set limit?
That's the thing. I am using nowhere near the 32 Gigs of RAM.Like now, as I'm exporting H264 for Youtube HD - it is using 16-17 Gigs and CPU range from 40-80%.
I do have a hard time color correcting HDV in Premiere, but mostly because I don't have much experience. I just don't seem to have a lot of control with the native Adobe CC tools. Plugins like Magic Bullet are not practical because they slow my rendering time quite a bit. I was hoping DNxHD would improve that, even though the conversion is another lengthy step added to the workflow
Yeah MB effects are going to be slow no matter what you do unfortunately. If you know you're not actually using that much RAM then I wouldn't worry about the message. However you might want to look into purchasing a GPU that supports CUDA accel, I think it would really help improve your user experince. If you can find a GTX470 that would be the card I'd recommend. Although you can get good deals sometimes on 570's as well. In one of my systems I edit on I was experincing slow performance and upgrading my GPU to a 470 made a WORLD of difference.
In my personal opinion if easy control over the effects is something you're looking for then I'd recommend looking into using the "ultra key" effect and just using the color correction controls that it offers. It has saturation, Hue, and Luminance controls. It's very easy to control. However this doesn't offer as much control as the fast color corrector effect, but if you combine it with RGB curves with the two working together it will allow you to achieve good results. It still won't be as good as using Fast color corrector or Three way color corrector though. But those effects are easier to control IMO. So maybe that is something you could try out. I'd still recommend a GPU upgrade though if possible.
Sorry I don't have a answer about why you got a low memory warning though. However if it didn't actually cause a problem I wouldn't worry about it. I don't think it's tied to DNxHD though because I edit with that codec quite a bit and never experince the problem. Although I have seen stranger things happen so I can't really rule anything out.
I have GeForce GTX 580 Amp. That, with doubling up on RAM made a huge difference
Well nevermind then, strange you're experince slow performance then. How many HDD's are you using and what interface are they connected by?
Internal SATA 2 or 3
4 TB (2-disk) RAID 0 for media storage
3 TB (2-disk) RAID 0 for cache, previews and pagefile
120 GB SSD system drive (Patriot Wildfire)
External (backups, extra storage, completed projects)
2 TB eSATA GRaid
1 TB eSATA