Two thoughts come to mind.
Did you wait until Premiere had a chance to conform the clip before trying to play it? If not either try it in a new project or delete it from the project, rename it and import it again this time waiting for the conforming to be finished.
The second thing, and the more likely judging from your problem, is a video card driver issue. Go to the NVidia Web site and make sure you are using the current drivers, which might be more up to date than those from Windows Update. Then poke around in the driver utilities settings and make sure Open GL is enabled.
Thanks for the suggestions but alas no luck.
I have updated Windows XP SP3 with all current updates.
I have downloaded and updated the Nvidia GeforceFX5500 drivers (which were the ones I was using)
I updated direct x to the latest version.
OpenGL is not available or I don't know how to configure it. Noticed this was greyed out in Photoshop and unable to select it.
Also captured new footage with CS4 without success after it was conformed as suggested.
I have no issues with CS2 which I have put back on the machine.
Neither the source or preview windows display video footage with cs2 captured files, cs4 captured files, imported avi files. But, noticed that if I created titles and imposed over static images they will display in the preview window but once it gets to captured footage it stops on the last frame of the title image. The audio continues but the video does not.
What version of Premiere are you running?
I just put Windows 7 on a spare partition here and installed PP 4.0. Things worked fine but when I applied the 4.1 update I started having the same problems as you in the video windows.
I had the same problems when I first installed Premiere on XP but an update to the video drivers solved the issue. My card, the Intel Mobile GM965 isn't a recommended one so I'm probably running Premiere out-of-spec and lucky to get anything. However, 4.1 worked find on XP but on Windows 7 (and maybe Vista) changed something that meant my set up was no longer good enough.
If you are running 4.1 and don't need the new features you might try uninstalling and then reinstalling 4.0 to see if that works before going for new hardware or a new PC.
Of course, a new PC would probably be best if money is not an object.
I am running CS4 as the 4.0 version. I downloaded the 4.1 update and it changed nothing.
I should have mentioned earlier that I am using the PC as my Media Center server. It runnings Media Portal 22.214.171.124 but as there was no issue with CS2 I didn't think there was a connection. Reading further into the forums I have seen issues with dual monitor setups. This is my next step.
Not sure if OpenGL is required as suggested as I removed CS4 off the main machine and tried it on my work station successfully. It is an Intel P4 2.6 Hypertheading chip with 1gig of RAM and onboard 64mb video.
Money is an object so I haven't upgraded the hardware, just the software. Next year I will be looking into a more powerfull machine but for now I would like to have CS4 working on a machine that has been used successfully with CS2 for ages.
Here is an interesting knowledgebase - http://kb2.adobe.com/cps/408/kb408986.html
It may not be specific to my GeForce FX5500 card which is running driver version 175.15. This is the latest driver for said card.