I had googled this problem and found that entry earlier. It does not help. Also, I was wrong about the PSE 3 part. It displays the first frame correctly but when I play it the video does not look right at all (extremely "shaky").
For a variety of reasons (related to codecs) you probably can not edit your Camstudio files in Premiere Elements in their native formats.
Have you tried converting the files to DV-AVIs using one of the free programs recommended in the FAQs to the right of this forum?
Sorry that Dan's methods do not work for you. He is the animation guru and also the HD to SD guru on the PrPro forum. I thought that his workflow would yield good results.
Sorry for the late reply - and what do you know, there is already a new version of Premeire Elements out
Anyway, back to my problem - I tried the options (namely converting it to DV-AVI) using Windows MovieMaker, Super and VirtualDub. The steps for MovieMaker are pretty straightforward but the ones for VirtualDub are not (meaning I could be doing something wrong).
The end result is still the same - the movie does not come out right at all.
I will keep trying and if I find something I will post back.