AVI is a wrapper, what is inside YOUR wrapper... Exactly what is INSIDE the video you are editing?
Codec & Format information, with 2 links inside for you to read http://forums.adobe.com/thread/1270588
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
http://forums.adobe.com/thread/592070?tstart=30 for screen shot instructions
Free programs to get file information for PC/Mac http://mediaarea.net/en/MediaInfo/Download
We have recently had a thread on .avi file and Premiere Elements 12 import failure.
That one involved the AVCHD.avi format which is not supported by Premiere Elements (apparently any version).
If you tell us the brand/model/settings for the camera that recorded your video, that might be the most convenient way to get all
the information that we need to get to a resolution or workaround for your issue.
Please review the above and then please supply the supplemental information needed for us to help you. By the way, please double check the error message that you report in order to confirm that you meant to type codec instead of cache.