I can't even tell what's happening at that resolution.
Do a favor and hit the tilda (~) key after clicking somewhere in your Sequence - this will make it go Fullscreen and post the screengrab afterwards.
Hope this is better. Apologies I'm very, very new to these kinds of things so I'll keep trying to make better screen grabs. The only thing you need to focus on is the small white rectangle underneath the selected clip on the right hand side. If anyone can tell me what it means and why it shows up when I try to drag a clip, would be very helpful.
Elements does not have the tilde key option: you initial posted on the Premiere Pro forum.
Have you tried rebooting computer and opening Elements again.
I gather this is W10? If so try running the program as administrator and in compatibility mode.
What computer operating system?
Premiere Elements 7 should be supported even on Windows 10 64 bit without having to address compatibility issues. I have been there and done that.
Is this the first project where you obtained this white rectangle? For troubleshooting purposes, what happens if you open a new project...same white rectangle as you try to drag clips in the Timeline?
Regarding this white rectangle, can you right click it to get a pop menu with option "Reveal in Media"? If so, what file thumbnail opens and is highlighted in Project Media?
If you expand the Timeline with the -+ slider above the Timeline, do you see anything except a solid white color inside the rectangle?
Depending on whether or not you can associate that white rectangle with anything in Project Media, I would save close the project file and delete the Adobe Premiere Elements Prefs file found
in Windows 7, 8, 8.1, or 10 64 bit
Local Disk C
and, in the 7.0 Folder, is the Adobe Premiere Elements Prefs file that you delete. Be sure to be working with Folder Option Show Hidden Files, Folders, and Driver enabled so that you can see the complete path selected. If that does not work, then delete the whole 7.0 Folder in which the Adobe Premiere Elements Prefs file exists. Restart the computer, reopen Premiere Elements, and determine if the white rectangle is gone in old and new projects.
We will be watching for your results.
Add On...have you noticed any irregularities related to the use of your computer mouse?