found answer to my problem...
"MPEG is a compressed, distribution format; not intended as an edit source"
"Premiere is not designed to edit mpeg video"
(you'd need to convert your mpeg to AVI, then edit, then export to mpeg again)
i've got a 1.6GHz P4, with 512MB of RAM, Geforce2 MX video card. 60GB HD at 7200rpm
however, when trying to play MPEG2 video in the preview monitor,
the playback stutters, and the frame rate is around 1-2 frames per second.
also, audio is not continuous.
an example clip that doesnt work:
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