Moving to Premiere Elements
You don't open a media file in Premiere Elements. You import it into a project using Get Media/from Files and Folders.
In Premiere Elements prior to version 11, it is also necessary that you manually set up your project settings to match your media so, before you even begin, make sure that you've created a project using the settings for Hard Disk/Flash Memory Camcorder either Standard or Widescreen, whichever matches your video. You must do this before you start the project because you can't change these settings later. (As I said, since version 11 the program does all of this automatically.)
Let us know if you have any questions.
Could include in your reply
What is the source of your .mpg file, what the properties of that .mpg file beyond its file extension? Is it high definition 1920 x 1080 or standard definition 720 x 480? And, very important, whether the audio format is characterized by Stereo (2 channel) or 5.1 channel audio. The audio information will impact your project preset choice especially in Premiere Elements 7.