What version of Premiere Pro? Have you installed the recent updates? What operating system? What kind(s) of source footage? Has this ever worked before? What other software are you running? Do you have any third-party effects or codecs installed? Tell us about your computer hardware. Are you using Mercury Playback Engine GPU Acceleration? Does the problem only happen with your final output, with previews, or both?
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You probably need to nest the track matte seqeunce and then add the transition.
For not being able to use the ripple delete depends on what is in your timeline especially in the audio tracks.
Premiere Pro CS5.5
OS: W7 x64
Source footage: avchd
Third Party Effects: No
Computer: 8460p Elite Book Core i5-2520m 8gb ram
Graphic Card: AMD Radeon HD 6470m
Mercury Plackback: yes
The problem shows up when I export. When originally editing problem does not appear then when exported the problem shows up in the final output. After that it replicates in the editing.
I also ran the update after you suggested it and the problem still exists.
Does it happen when you set the renderer to Mercury Playback Engine Software Only?