Use General in the Sequence settings to create a desktop sequence, or even easier, drag a clip from the project panel to the New Item icon and a new sequence with the correct settings will be created automatically.
Using General didn't do much. I tried dragging onto "new" but it's still not playing right. It's playing back at like 3 fps. =\
That is to be expected if your system is less than a 20 core Intel CPU with 48+ GB memory and a 16 disk Raid 3/5 or better and a nVidia GTX 580 or
Quadro 6000 on Win7 64 Pro.
What video-capture program did you use to create this file?