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First, make sure you're running Premiere Elements in 32-bit emulation mode, Bill. Running it on a 64-bit operating system has been known to cause all kinds of goofy issues.
Second, make sure Vista is updated to at least SP1 and with all the latest drivers and newest Quicktime, per the FAQs at the top of this forum.
Finally, make sure your operating system is optimized for video editing, also per our FAQs.
That said, it's really surprising, if your system is fully optimized, updated and tuned up (per http://www.adobeforums.com/webx/.3bc43f9a ) and running in 32-bit mode that you're having any memory issues with version 4. Version 7 is, from all reports, much more stable -- but demands even more RAM space, so if you're having refresh issues with version 4 they're probably going to be even worse in version 7.
So I'd definitely look into what's causing a computer with that much power to leak resources.
It could be the RAID set-up. Or it could be that the secondary or tertiary drive you're working on (assuming you've got your project on video files on one of these drives) has been set up in the operating system but not your computer's BIOS. Or that they're formatted FAT32 instead of NTFS.
Or it could be the nature or size of your video clips. But that's hard to say without knowing more about your system, camcorder and workflow. (Hard drive camcorders certainly don't make the best sources for video editing -- but, with your rig, they shouldn't be fatal, if all others things are set up right.)
How's that for a lot to think about?
I ahve worked with several MPEG 2 files in PRe4 and it has not given any problems. Apert from Steve's suggestion I would also like you to select correct project preset. For MPEG it is based to work in Flash Memory based presets.
Be patient and the PE7 trial version shoul dbe available shortly. I recommend downloading the trial version and testing it out.
Other than that - I fully agree with Paul's response.