It's possible that the AVI is not in fact a DV-AVI.
You can use Gspot to verify (GSpot http://gspot.headbands.com/ ).
Or just take the converted Mpeg to Windows Movie Maker, and use that for conversion to DV-AVI.
Regarding the very slow indexing, it could be a factor of your system CPU speed or setup, but I'm suspecting the source AV file could be the culprit. One (1) hour plus for indexing on a 5 gig file is unacceptable.
If this doesn't work, post what Gspot indicates, and some info on your system specs...
There are a lot of articles on the .MOD format, produced by the JVD. You will probably get a lot of info from those. IIRC, there is an entry, or two, in the FAQ's. Do not limit yourself to just the PE3 FAQ's, as much of the info contained in all of them are not version-specific.
As for the conversion, what you want is DV-AVI Type II with PCM/WAV Audio. The file will be approximately 13GB/hour of Duration. That is the nature of that format, BUT it is what PE works with natively. Anything else WILL be converted internally to DV-AVI Type II.
Now, you state that the included software converts to .AVI. Do you have access to the settings that it uses? Can you specify the MS DV CODEC for the .AVI? If you are not sure about which CODEC the software produces, use G-Spot to get the full info. If you cannot set the software to produce DV-AVI Type II, then you will be better to convert once again, though that should not be necessary - probably just a setting, or two. If you cannot get to DV-AVI Type II, let us know what your full range of choices is. Someone can help you choose the best one, and likely give you steps to get TO DV-AVI Type II.
If your output is to DVD, the Export from PE will be MPEG-2, so the file size will be greatly compressed to fit on a DVD. The Duration of your final output will determine the end quality.
The better the resource files, that you feed into PE, the better the output, and also the editing experience will be. The fewer conversions that you can use, the better the quality will be and the fewer the problems, that can crop up.
Pity we lost the bulk of the FAQs, there was a very good one on how to manage MOD files for editing in Premiere Elements. PE will recognize MOD files but there are a number of issues with using them in PE. The recommended work around was to convert to DV-AVI using MPEG_Streamclip (a freeware) whos output works flawlessly with PE.
Your export from the bundled software indeed sounds like DV-AVI... DV-AVI is 13GB per hour of video. As Kodebuster/Hunt recommends you can confirm this with GSpot. It is much better to convert to DV-AVI rather than MPEG... MPEG is already a compressed format and is not suitable for editing as quality will be lost on further conversion/burning to DVD.
I do not understand your comment regarding the bad bit rate for DV-AVI... can you explain. DV-AVI will give the best quality when edited and transcoded burnt to DVD.
I wondered about that too. I suspect that the OP meant "the bit rate would be very bad... ," but that file size will be greatly diminished, when PE Transcodes to MPEG-2. A better benchmark would be the total Duration of the footage. IIRC, it was about 1 hr., which should yield very good quality.
We'll just have to wait and see.