Despite the adobe website confirming that this format is supported, the files play audio only, not video, which is a fundamental failing for video editing software, and yes, they did play in windows before anyone asks!, and no, my PC is not out of date, and yes, I do have an up-to-date operating system
This is true. Premiere Elements does have trouble with H.264 AVIs.
The best solution I've found it to load the video into Windows MovieMaker Live and then output it as MP4. That MP4 will work perfectly in Premiere Elements 11 or 12.