I am very confused
>new PrElements 10 user - CS5 with Premiere Elements 5
Just EXACTLY what are you using... Premiere Elments 10 or the very old version 5 or Premiere Pro CS5???
Photo Scaling for Video http://forums.adobe.com/thread/450798
-Too Large May = Crash http://forums.adobe.com/thread/879967
>ai files are sized in widescreen 16:9 at pixel size 800 x 450
>project preset is HD 1080i
I will GUESS you need an SD Widescreen project
There is something wrong with your Premiere Elements version number. There was no Premiere Elements 5. It skipped from PrE 4.0 to PrE 7.0, to bring it up to version number with Photoshop Elements.
Which part of CS 5 are you using, Photoshop CS 5?
For Still Images to Video, you will first want to Scale the Images to the Frame Size of the Video Project, in Photoshop. That will maintain quality, and also reduce computer processing overhead. John T. has furnished a link on Scaling, that goes into a lot more detail.
Now, if you ONLY had Still Images (no Video), and wanted HD (High Def) output, you could just choose 1920 x 1080, and Scale to that. However, if DO have Video, you will want a Project Preset that matches the Video's specs., and then Scale the Still Images to that Frame Size.
If you ONLY had Still Images, and wanted to do SD (Standard Definition) in Widescreen, you would create a DV Widescreen Project, and Scale the Still Images to match that Project's Frame Size, say 720 x 480, if you are in NTSC-land. If you have any Video, then the same suggestion, as above, comes into play.
Now, File Size is mostly dependent on Bit-Rate (translates to higher quality), and Duration (the RunTime of the Timeline/Project). Getting good quality vs File Size is a real balancing act.
Though written more for Premiere Pro, this Adobe FAQ Entry will tell you a bunch about output settings. Note: in PrPro, output is still called Export. As of PrElements 7, everything is now under the Share Tab.
If you are new to PrE, this partial list of RESOURCES might be very helpful.