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Well, part of the issue is that you're using hi-def footage from a still camera. In this case that footage is highly non-standard AVCHD Quicktime, not by any means the ideal source footage for Premiere Elements.
Short of doing your editing on a Mac using Final Cut Pro, you'll likely need to convert that footage to the more standard HDV MPEG2s, using a program like Quicktime Pro ($29 from Apple). In fact, Quicktime Pro can not only convert the video footage, but it can do some basic editing also.
But there's no way that the marriage between AVCHD MOV video and Premiere Elements will be a happy one.
There are several threads on the Canon 5D MK II and its files. I think that I linked some of the articles from the Premiere Pro forums to one on this forum. I'd suggest a search of this forum for "Canon 5D MKII." If my memory is failing, and there are no links to PP forums, then do a search there too. Much discussion and possibly some tips that will apply to your Project.
Thanks guys. I'll look into Quicktime Pro. And I'll go and do some more reading in the forums. As for the project I was working on I was able to output finally. I basically split the project in half, outputting both halves separately. Then I used the 2 outputted halves to create the full movie. Not sure if that's really a workaround I'm happy with but we'll see. I'm guessing having the program reference 30 different HD files was too resource intensive. I wonder if outputting the previously outputted files sacrifices quality. I'm still very new to video editing. Hopefully delving into these forums reveals a better work flow I can use.
As far as the workaround, that is essentially the way that Premiere Pro does it. The only difference is that the "pieces" are separate Sequences with their own Timeline, but are in one Project. PE is a little different in that respect, but it is basically the same.
As for outputting to a finished AV file for each mini-Project and Importing, depending on the format that you choose, there should be no noticable degredation in quality. What Project settings did you choose, and what Export settings did you choose?