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It varies from computer to computer, depending on what codecs are installed -- although Divx is Xvid are definitely problems and it's unlikely you'll be able to edit MP4s.
The ideal format for editing is DV codecs of AVIs. The program also supports MPEGs to some extent and, in version 7, HDV and AVCHD.
It is not a good idea to try to edit a variety of file formats with this program. I guarantee it's just going to lead to problems.
Premiere Elements is powerful, but its range of formats is narrow.
Ulead's Video Factory may offer greater versatility with less power.
As Steve says, it is "best" to feed PE the files that it likes the best, DV-AVI.
Now, PE *will* work with many files in other formats, provided that you have the proper CODEC's installed on your system. It's less about PE's working with CODEC's, and more about it working with file types. For instance, PE can Export to most CODEC's, that you have properly installed.
Now, let's go back to "feed[ing] PE the files that it likes the best... " Since every AV file that you Import will be converted into DV-AVI for editing by PE, I find that it is better to do this conversion outside of PE. NLE's, like PE, really do not need to do extra work, and the conversion of AV files IS extra work. NLE's are designed to edit AV files, not convert them.
I use a shareware converter, DigitalMedia Converter (Deskshare), and it works almost perfectly for me. It WILL use every properly installed CODEC on any of my systems. At last count, my workstation had about 450 and the laptop 340 installed (Audio & Video). It allows batch conversion, is quick and quite good. There are freeware, and other shareware converters available. I do not use any others for 99% of my work, as DigitalMedia Converter just handles it - including DivX and Xvid, with hardly a hiccup. For me, it's about the best US$40 that I've spent, right next to the "Pro" version of QT.
In my workflow, I always start a Project by organizing and converting all of my Assets, so they work best with my NLE. If I had a bunch of non-DV-AVI files, I'd gather them into a folder, "Video," and make a folder, "Converted Video." While I was getting any stills ready in PS, I'd turn DigitalMedia Converter loose with the conversion of all Video Assets to DV-AVI with PCM/WAV 48KHz 16-bit stereo Audio. By the time my stills are re-sized and corrected for TV (assuming I'm in a DVD Project, like I normally am), my Video files are all converted and ready for Import. I do the same thing for all MP3 Audio Assets, as PCM/WAV (to spec above) is what works best.
Now, I'm ready to Import and get to editing, which is what PE (or any NLE really) is all about. They use a good amount of a system's resources already, so I do not want them bogged down having to convert file types also. Besides, 3rd party converters usually do a much, much better job with the conversion - that is what THEY do best.
It will save you a lot of grief if you incorporate ideas, like these, into your workflow, and do them outside of your NLE. Also, I find that it's also better to organize one's Assets into the Project's folder hierarchy, than to grab Assets from all over the system. It pays off, when you wish to "archive" the Project. It also means that I am not working with my original Assets, but copies that I have placed in the proper folders, within my Project's structure.
Now, you do not have to do this. You can try and force your NLE to work with whatever you try to feed it. Your results *migh* be OK, but I'll bet that you encounter problems someplace, even if it's just sluggish performance.
There are several recommendations for freeware and inexpensive shareware converters in the FAQ's section. Be sure to read all of those, not just the ones for your version of PE. If a program is recommended in the FAQ, it's because they work. I just happen to have some others, that I own, know and that work for me.
Yes, with standard definition anything other than DV-AVI can give rise to potential issues, having said that many folks have no problems with other formats. For example I have made DVDs using Xvid files as source videos without any issue. But as Bill said I have the appropriate codec installed.
I too have gotten some odd formats to work, with few problems, but these have been smallish Projects. Most often, these "odd" Assets will yield Audio, but no Video, or vice versa. Or, the file may end up truncated someplace. Next, they often bog down the user's system. Last, they continually crash the NLE. It is certainly a YMMV situation.