Premiere Elements 7 crashes worse on faster computer

I have been running Premiere Elements 7 for a few years with sketchy and slow, success on a straight Pentium 4 machine with about 1.2 GB of RAM. It would crash sometimes, and was really too slow to get any real work done, so I decided to install it on my once dedicated DAW, which has the following specs:
Gigabyte GA-P35-DS3L MoBo; Q6600 processor; OCZ 4GB DDR2 800 RAM; Windows XP-32; Gina 3G soundcard; Asus EAH3450 graphics card (which is an ATI Radeon HD 3400 Series card) with 512MB Video RAM.
C drive is 75 GB WD Raptor. D drive is 600 GB drive.
On the faster computer, it's worse. It crashes all the time and the sound drops out ever few seconds.
I basically imported a photo into a new project and started getting "Running Low on Memory" messages, and then it crashed. In the lower left corner of the Premiere window, there was a Display Setting warning sign. So, going by what I found on the forum, I went into preferences and changed the Display setting to Standard (the second option). It was originally set on the first option.
I set my scratch disks on the larger drive, where my video elements also reside.
I set my virtual memory to be on this disc as well, at 8196 KB. Originally it was set at 8000 KB on Drive C.
I restarted and managed to get a video clip in there with a photo and did a couple of effects, then got the same low memory message. Also noticed that the Display Warning sign was in the corner as well. Whenever I try to play back something, the sound drops out every few seconds and comes back in.
This makes no sense to me.
The video was shot on a Sony Bloggie camera. Using GSpot, the video clip appears to be:
Video: Codec: avc1 / Name: H.264/MPEG-4 AVC
Audio: Codec: mp4a: MPEG-4 AAC LC / Info: 48000Hz 128 kb/s tot, stereo (2/0)
I'm frankly stumped and would appreciate any help.
Mark
P.S. Since I've had nothing but trouble with Premiere Elements 7 since I got it, do you think Adobe would do a free upgrade to an "unbroken" version? I'm serious. I feel like I spent hard earned money on a broken program. Thanks.

Several things strike me as problematic
PRE7 doesn't support dedicated MPEG4 camera like the bloggie. This is why you will be getting red lines all the time - there is no project setting match for your clips.
Your graphics card is old. The last legacy driver for the 3400 series is v10.2 dated February 2010. The most recent Catalyst suite is dated 7th March 2012 v12.2. Which of these do you have?
Your C: drive is only 75GB total. Even if you have pointed Adobe files to your D: drive, PRE does still create many (measurable in Gigabytes) working files on C: (in W7 it is under C:\Program Data\Adobe, I don't know what it would be for XP). How much free defragmented space does that drive have?
You say you've set virtual memory to 8,196KB. If that is correct and not a typo for 8,196GB that will give you great problems.
See if you can temporarily move stuff off of your C: drive to leave around 40GB free defragmented space. I think that should give you an immediate performance and stability boost. But with that bloggie footage you are always going to have problems.
Cheers,
Neale
Insanity is hereditary, you get it from your children

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>chose setting NTSC HDV
According to Kodak http://store.kodak.com/store/ekconsus/en_US/pd/Zi8_Pocket_Video_Camera/productID.156585800 you are not selecting the correct setting... that camera does not use HDV
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