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Use a Standard DV preset. Convert your files to DV AVI Type 2.
Go to my notes page http://www.pacifier.com/~jtsmith/ADOBE.HTM
Click the internal link for editing compressed files... read
There are other products better suited to your task
My clips were shot in widescreen so which DV setting as there are several. NTSC? PAL?
If you have to ask that kind of question, then Premiere Elements may be the better program for you. It should take the files directly from the camera.