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I would not return Adobe, I would return the camera, it is not suited for editing. If you insist on editing that material and end up with pretty crappy results, play it out from a DVD player into a good tape based DV video camera thru analog in and pass it thru to firewire for capture.
To put it another way, when maximum achievable fidelity of video is 100, your camera is at 10% due to the heavy MPEG compression. You need to convert that to DV and you are left with around 8% due to DV compression, you then need to encode it again to MPEG and you end up with less than 1% out of a possible 100.
Your problem is that your audio is Dolby Digital (.ac3). It does not import into Premiere. But, there's a file that is in the Encore application folder that will allow you to import .ac3 audio into Pr.
Copy the ad2ac3dec.dll file from the En folder to the Pr application folder and you should be good to go.
PS - Harm's right. MPEG2 video stored on DVD, whether from a DVD camcorder or a finished DVD, makes lousy source material. However, sometimes we editors have to make do with what the clients give us, or what currently exists in our library.
>I would not return Adobe, I would return the camera
For someone who bought that camera, not really understanding that much about video to begin with, I'd recommend returning Premiere Pro and sticking with a more consumer friendly tool like Premiere Elements or Movie Edit Pro from Magix.