Dragging clips into the movie - iMovie HD

After shooting a clip with the bult-in iSight, when I try to drag the clip into the project, it wont move, and the clip turns grey.
I have no idea what is going on.
Help?
Please and thank you!
Michael

The project isn't HD. The sequence is. You can multiple formats in one project. Use Ease Setup to change the preset and then make a new sequence.

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