Because of the way Premiere Elements works (It uses a DV-AVI workflow), you'd be much wiser to do this kind of work in Windows MovieMaker.
In Premiere Elements, the program will turn the WMV into an AVI, then turn it back into a WMV to output it. This will take a lot of power and the results will likely be pretty disappointing.
Windows MovieMaker uses a WMV workflow -- which means that it edits WMVs natively and outputs the files without recompression.
You're doing to drive yourself crazy trying to edit a WMV in Premiere Elements -- especially one that size!
Editing in MovieMaker should go smooth and easy!
I agree with Steve. While WMV is a supported format, the CODEC's used will initially heavily-compress the footage, and require some intense horsepower to internally convert to that DV-AVI.
Were I faced with your Project, WMM would be my first stop. If I needed Effects, or more editing capabilities, then I would convert that WMV to DV-AVI externally, Import that, but would probably Export/Share to DV-AVI, and use the free MS Media Encoder (name just recently changed, so my link no longer works with for the new version), as PrE (and PrPro) is not the ultimate WMV Encoder.
Remember, your material is already heavily-compressed, and no amount of conversion, whether internally, or externally, will recover the lost data and quality. Keeping things in WMV with WMM will keep it as good as it gets, and that is why Steve, and I, recommend it for this sort of Project. WMV's are great for delivery, but heck to edit.
Okay I'll try it in Movie Maker. Wouldn't be able to give a tip on MM would you? One problem, in MM when I try to "Save to my computer" and choose the best fit option it gives me an expected output of about 140MB. The display shows me about 50 minutes left to process. But then it stays at 1% and the time to complete starts climbing. I'm at 2000 Minutes now. I assume it's hung. I saw a posting to defrag which I did but didn't have any effect. I also rebooted my XP PC. No effect. I've been able export before. Not sure what has changed but I can't save in MM.
WMVs can uses variable quality levels so there's no way to know what quality/compression level is going in. It's why it makes a pretty lousy source format, in my opinion.
Outputting a WMV at the exact same specs as the one you put in is also all but impossible. All you can do is make your best guess and hope for the best.
Beyond that, it's really more of a Microsoft than an Adobe question, so it's way outside of our area of expertise.