iMovie Hangs on Import on Mac 10.7.3

Greetings all,
Recently purchased a new macbook pro with 10.7 Lion. It does not have iDVD, so I'm trying iMovie.

I have MPG video files from my Sony cam-corder. I've moved them from the camera to my hard drive. When I import these MPGs into iMovie, nothing happens. I see a pop-up that reads, "Optimizing Video - Processing Event iMovie-myMovies"

Nothing happens in this popup. The progress bar never starts. It seems to Hang at this point.

I've used iDVD on my older macbook with videos from this same camera. I never had a problem importing movies.

Is this a codex problem. I've read that MPGs are in the MPEG-2 file-types and Mac 10.7 has problems with MPEG-2.

Any ideas?
Thanks,