This is aimed a Premiere Pro, but may help - First, work through the steps here http://ppro.wikia.com/wiki/Troubleshooting
If your problem isn't fixed, report back with the DETAILS asked for in the questions at the end of that link
1) It sounds as though you are editing AVCHD. Is that the case? If so, is your project set up as an AVCHD project?
2) You say you've got the latest Windows Updates. Might be worth manually returning to the site. You should be up to at least SP2 at this point.
3) Have you tried Eelco's hack for putting more of your programming into upper RAM?
AVCHD is the hardest format to edit. In fact, even quad core processors are challenged by it. This could be why your editing goes well until you add an effect to it. It's a shame, but at least on PCs, the hardware and software has not caught up with this intensive video format. (On Macs, Final Cut software uses an intermediate codec, which makes editing this format easier.)
Also there are variations of MP4 video that Premiere Elements can not handle at all. AVCHD Lite, for instance, and video from Flip cameras. These formats are a whole different issue.
Along with the other ideas, you might be able to pinpoint where the crash is happening, and then discover the why. This ARTICLE is more for systemic crashes, but can also be applied to Application crashes, as well.
Thanks everyone I will try all that was suggested. There is a lot of computer language I don't understand but I am trying.