Well, I'm hoping that, although your equipment is "straight out of the box", you've gone to Windows Updates for all of the necessary updates, downloaded new drivers from your hardware providers (particularly you video card's) and installed the latest Quicktime. Even fresh out of the box equipment is sometimes four to six months out of date.
But, that said, there are a couple of things you can do about your playback, depending on what you're seeing when.
1) If you're just playing it in Premiere Elements, your time stretched clip may need rendering. (Is there a red line above it on the timeline?) Press Enter so that it can render (the red line will turn green). This will give you a better idea of what your final output will look like.
2) If that doesn't help then, depending on how much you slowed the clip, it may help to apply Frame Blend from the right-click menu to smooth the play out.
If neither helps, it may be related to your source files. Because of the temporal compression system that MPEGs use, they don't do slow-mo nearly as well as DV-AVIs.
One question: after you apply the Time Stretch, does that Clip (with the Effect) show a red line above it, in the Timeline? If so, have you tried to Render it (Enter key)? Does this improve the playback?
Now, besides the Time Stretch Tool, have you explored the Posterize Time Effect? Many find that with certain source footage, the latter performs better, though not always.
I was referring to Premiere Elements 7 as being "straight out of the box". IOW, I have set no preferences as of yet because I do not know what to set. Windows XP is fully updated as are my equipment drivers.
I did get the red lines after editing and I rendered the edited clips before sharing. I should have mentioned that I am editing Windows Media files (.wmv). I hear what you are saying regarding DV-AVI but if i convert the .wmv to DV-AVI and then back again, wouldn't I still get the stuttering and experience several generation losses? btw, I tried Frame Blend but it seemed to make the condition worse.
I am going to give Posterize Time Effect a try next and I will report back in a few minutes.
I would leave .WMV out of any mix, until time to Export. It has many flavors and some are very highly compressed. All are compressed to the point that PrE needs to do a lot of processing to edit the files. DV-AVI Type II w/ 48KHz 16-bit PCM/WAV Audio is the best to work with - not any flavor of .WMV.
Compressing to .WMV, converting to DV-AVI Type II and then re-compressing to .WMV will lead to a major quality hit. It is best to avoid this extra step and only use .WMV as the delivery format, for which it's intended.
Unfortunately, I got the video in .wmv format. Would you recommend converting to DV-AVI, doing the editing, then converting back to .wmv if the slo-mo is more important than a generation loss?
For what is worth, I tried Time Posterize and it did not help.
I also thought I might be doing something wrong with how I applied the time stretch. The instructions say to move the clip to the end of the timeline when applying Time Stretch because otherwise the clip would not have room to expand if slowing down the speed. So, I do this, then cut/paste it back to its proper spot. I assume this is okay. This is one area where Pinnacle Studio has it over Elements 7 - you can slo-mo the clip in place and it will expand & push the clips behind it back down the timeline.
WMVs can use any one of dozens of codecs and compression settings. You'll definitely be ahead of the game converting to DV-AVI before you attempt a time stretch.