What processor is on your computer? Is it a dual-core, quad-core or i7, or an older processor like a Pentium? It's not clear from your notes.
Is this a new computer that came from the factory with Windows 7 installed or did you upgrade an old computer?
It could be that your system isn't powerful enough to work with this video.
I assume youv'e got the latest version of Quicktime from Apple.com.
You seem to be doing the right things. Although, when your source video matches your project's settings, you usually do not get a red line above the clips on your timeline.
Processor is a Pentium 4.
Windows XP was the factory installed operating system. Would it help if I upgraded and installed Windows 7?
No. As a matter of fact, that would likely make it run slower.
Your computer is probably not powerful enough to edit high definition and DSLR video. Sorry.
In my books I recommend at least a 2.6 ghz dual-core processor and 2 gigs of RAM for editing standard def video and a quad-core or i7 processor for editing hi-def.