First, ensure you do have the latest driver from the nVidia or ATI web site.
Then, in XP, go to C:/DOCUMENTS AND SETTINGS/ALL USERS/APPLICATION DATA/ADOBE/PREMIERE ELEMENTS/[version 0.00] and remove or rename the file BadDrivers.txt.
In Windows 7 or Windows 8, go to C:/PROGRAM DATA/ADOBE/PREMIERE ELEMENTS/[version 0.00] and remove or rename the file BadDrivers.txt. (You may need to first go to Start/Control Panel/Folder Options/View and, under Hidden Files and Folders, select the option to Show Hidden Files, Folders and Drives.)
When you next launch Premiere Elements, BadDrivers.txt will be recreated and you will no longer see the message.