Not an answer, just a question
What happens when you apply the Premiere Elements 4 Edge Feather Effect to the photos as jpeg on the Timeline?
Along those lines, has the Edge Feather Effect ever worked for you? Do all of the other Effects work fine. Do a short "test" Project, say one Clip from the Samples. Add every Effect, that you can think of, one at a time, and Render, then Play. Maybe more than one Effect acting up.
It could well be that that the .PMP file has become corrupted. If that is the case, a Repair Install could possibly find that, and fix it. I find Adobe's Repair Installs to be pretty good. Initially, they are slow, because they survey every module, plug-in and piece of the program, doing a checksum on it all. This is usually accurate, though I suppose the installer could miss something, and hence not repair it. Still, for me, they have cleaned up damaged files in the Adobe programs quite well. I'd always try this, before an uninstall/reinstall.
Corruption, or similar, can occur for many reasons. One could be using it, and have a system, or program crash. An update to almost anything can overwrite, or otherwise render an element useless. Gremlins in the computer can eat part of the code. [OK, that last one is a joke, but things that are totally unexplained, can cause it - we never know exactly what it was.] Sometimes, I think that the 1's & 0's just get tired of being who they are, and decide to swap places for a while...