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This is coming up a lot lately. It must be the popularity of cheap camcorders (Flip, for instance) that produce standard video in MP4 format.
You probably won't be able to use MP4s as a source file for Premiere Elements (the exception being AVCHD, and that only with the proper settings and hardware).
See if this FAQ, from the library at the top of this forum, offers a solution for you.
You may also have better luck editing or converting your video with Quicktime Pro, available for $29.95 from Apple.
Run Task Manager while editing and watch the total memory. In my experience running PE on XP Pro (32 bit), if the total memory figure gets to about 1.4GB for any reason (and editing lots of MP4s will do it), PE can either crash or freeze or get very flakey. You can even get into a situation where it will let you add clips and then the resulting project will crash PE. If you or PE saved just before it crashed, you may find that you can no longer open the project without PE crashing right away.
I have found that if I have another program open in the background, switching focus to it and then back to PE can often free up memory for a while.
Note that this is independant of the amount of physical RAM you have in the system. A 32 bit OS hands out 4GB of virtual RAM per application and that is split 50/50 between the application and system tasks so PE only gets 2GB to play with, no matter what.
I am experimenting with Windows 7 (64 bit) and things are smoother but near as I can tell, PE runs in 32 bit mode on a 64 bit OS so it can't take advantage of the additional memory space the OS can make available. I think Windows 7 gives it 3GB instead of 2GB though. Too bad, this is the one application I own that could REALLY use more memory (and I thought that a couple GB would be WAY more than I would ever need for any application). Oh, and I'm liking Windows 7.......