Version 3.0 wasn't really equipped to work with HD video. Especially not AVCHD video. That didn't come until later.
Converting video is a tricky business. If you don't know what you're doing, you can end up making your files less rather than more compatible.
What model of camcorder is your video coming from and how did you get the video from the camcorder to your computer? What do you mean that you "converted to SD prior to capture"? How exactly did you do this?
When you started your Premiere elements project, what settings did you select? You can see the project settings under the Edit menu. What are listed?
One other note: You say you have photos also in your video project.
Did you ensure that all of the photos are no larger than 1000x750 pixels in size? Oversized photos are the chief cause of out of memory messages.
Steve and John
Thank you for your replies. I finished my project after much gnashing of teeth and gathering info from various forums. (was crunched for time as needed to be finished by the end of the school year). I figured out a work-around by trial and error. I exported groups of Photoshop files to my hard drive, closed Photoshop which was consuming much RAM, and then imported the photos to Premiere elements...it worked!! My computer has only 2 gigs of RAM, which is apparently not quite enough (though it worked on prior projects)...I also tried closing other programs/ aps running in the background, but it didnt seem to help and I did not know what I was doing. It was the RAM required by Photoshop....Looks like I'll need a computer upgrade?? soon as its 4 years old. Also, fyi, I converted the HD files on my canon camcorder to SD files and transferred to a second SD card within the camcorder, so I was really not dealing with HD size files.
Thank you for the time you took to respond, it was helpful in the end!!