The danger in letting someone else create video clips for you is that you don't know for sure what codecs and other specs they're using for their videos. And that makes it hard to find a project preset that matches the footage.
When you say that the 1920x1080 footage your friend made works fine in Premiere Elements, do you mean that when you add the clips to the timeline there are no red lines above the clips? If you do see red lines above these clips, it means that you haven't got a match between your project settings and your video -- and that could definitely account for the issues with your output.
Also, you say you're outputting to 1280x720p. There are actually a number of ways to create a video at this resolution. What do you plan to do with this 720p footage? That could determine your best output settings. It could be that the output settings you're using aren't the ideal format for the player you're using to view them. (BTW, what viewer are you using to play them?)
Finally, if you could, can you post a sample of this output video to YouTube, Vimeo or Muvipix so that we can see the issues you're describing, that would be very helpful. Like many others on this forum, I'd prefer not to download and open a zip file from a stranger. No offense.
Thanks for your reply Steve!
The WEIRD thing is when I uploaded the video intro with errors to Youtube or play the video on my laptop it looks fine! My Desktop is a 23 inch HD screen so that probably had something to do with it.
But you were right, my project settings were on 1920x1080, so when I exported to that resolution, the video looks fine. When I used these same project settings but exported to 720p, the errors appeared (on that computers playback).
So I started a new project in 720p and exported it and it come out fine.
I think its my mistake for being careless. Thanks for your help.
Here is the video intro, if anyone is interested (doesn't have the error after all). http://www.youtube.com/watch?v=H13zRO_3XMY