Sorry for the late reply, I missed the e-mail notifcation.
Like most MS products it doesn't like using formats that MS didn't come up with. If there was a movie file that I wanted to edit, and it wasn't avi or wmv I would have to convert it first.
At one point I thought that it took a file that I didn't think it would take after I installed the latest K-lite codec pack.
But you said that you already have that codec installed that plays the movie.
Finding the software that is best for you and your computer for converting files will have to be up to you.
I did hear that MS has a
WMV encoder out there. But I haven't had a chance to see if it would work on such a file. I started using it not that long ago for something else, but it's worth a try.
Like I said before, you may have to get another video editor to be able to edit the file that you have.
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Now that I have re-read what you said about it asking for a codec, try installing a codec pack. K-lite being the choice of the masses, and see if loads it then.
You have updated to SP2 for your XP right?